A few fine details on who can and who cannot contribute to IRAs for the 2017 tax year. If you are eligible and you plan to contribute, you have until April 17th of 2018 to do that. And remember, any year you don’t contribute, that contribution is gone, gone, gone forever along with all the associated tax benefits.
A primer on the two main types of IRAs you can contribute to…a pre-tax or a Traditional IRA and a post-tax or a Roth IRA.
In a Traditional IRA, the money goes in pre-tax and grows tax-free until you are in your 60’s at which point, you can start taking distributions. That choice regarding taking distributions becomes a requirement when you turn 70 1/2. And distributions means income and income means taxes. You will pay a tax equivalent to whatever your tax rate happens to be in a given year in retirement.
With a Roth IRA, the money goes in after-tax and is basically never taxed again. Plus there is no requirement to take distributions if you don’t have to and could become one of the best accounts for your heirs to inherit.
On to who can and who cannot contribute…the income in the table below refers to modified adjusted gross income or MAGI which for most folks is the adjusted gross income or AGI. You want to use the income on line 37 of form 1040 and compare it with the income in the table below to determine your eligibility.
Questions are always welcome at adviceATonceusaveDOTcom.