Even though 2014 has come to an end, there is still time to save for retirement while possibly qualifying for a tax deduction. Both traditional IRA and Roth IRA contributions for tax year 2014 can be made up until the personal filing deadline of April 15, and could be beneficial to you depending on your tax and retirement savings position.
For year 2014, the total amount you can contribute to either a traditional IRA or a Roth IRA is $5,500, and up to $6,500 if you are age 50 or older. Contributions made can be partial or up to the full amount allowed for your age, from your or your spouse’s earned income.
Traditional IRA contributions are considered pre-tax dollars, which means that you have the ability to deduct a certain amount of the contribution from your taxes in the year it is made. There are some limitations with tax-deductibility, however, depending on a variety of factors including whether you or your spouse is covered by a work retirement plan, your annual income, and your tax-filing status. The earnings in a traditional IRA grow tax-deferred until you begin taking distributions (after age 59 ½ without penalty), whereby you are then taxed on the distributions as well as the earnings.
Roth IRAs work a bit differently, where the contributions made are considered after-tax dollars and are not tax-deductible. The funds in these accounts grow tax-free, and the withdrawals made at retirement age are also tax-free, if the distribution is qualified. There are income requirements set out to qualify for contributing to a Roth, depending on whether you are single or married, and your tax-filing status.
The above is a brief overview and reminder that you can make a contribution up until the tax-filing deadline of April 15, 2015 for tax-year 2014. There are many advantages and disadvantages to opening and making contributions to either a traditional IRA, or a Roth IRA. It is best to work with your advisor when making a contribution to maximize your tax and savings opportunities.