Client Question: IRA Funding Deadlines

March 14, 2024

Don’t look now – the 2023 tax filing due date (without extension) is only a month away. As the date approaches, you may have questions on certain tax-related matters (there a lot of things to keep track of!) As a result, I thought I’d cover a question I received from a client this past week related to IRA funding timing.

IRAs (individual retirement accounts) are exactly what the name applies – retirement accounts that are set up by individuals (as opposed to 401ks and 403b which are set-up by employers). There are two main types of IRA – a traditional IRA (which allows for the contribution of pre-tax funds and a resulting tax deduction) and a Roth IRA (which allows for the contribution of after-tax funds so no related tax deduction). The amount and ability to contribute to IRAs varies for each person and set of financial circumstances so before making any contribution, ensure you first assess your eligibility. This article won’t delve into those items but rather look at the timing/deadlines for IRA contributions

When can I make an IRA contribution?

You can make an IRA contribution anytime during the related tax year – and all the way thru the tax filing due date for the tax year. As a result, 2023 tax year IRA contributions could have been made starting January 1, 2023 – and all the way until April 15, 2024. (Note: Even if you opt to extend your return, the contributions must still be made by the April tax filing date).

What is the best timing for me?

As with most investments, giving yourself the most time for compounding is the best strategy. However, in some cases, you may wish to wait and see what your income is for the year before making your contribution (since you may not be eligible for some contributions if you earn too much). As with most money questions, the best timing depends on your situation so work closely with your tax and financial advisor before proceeding

How do I make sure the contribution is coded for the proper tax year?

When you make your contribution at your broker/dealer, ensure that you denote which tax year the contribution relates to. Most broker/dealer platforms now require you to specify the tax year at the time of the deposit but some automatically default to the tax year during which the contribution is made (ie: tag a contribution made in March 2024 for tax year 2024, even if you meant it for tax year 2023). As a result, be sure you take the time to check future statements to make sure they have it coded the way you intended.

What if I already filed my return but have yet to contribute to my IRA?

This was the situation my client asked me about – he filed his 2023 tax return last weekend but failed to fund his Roth IRA for tax year 2023 before doing so. In his case, this wasn’t an issue since a Roth IRA contribution is non-deductible so funding the account doesn’t have an impact on his taxes of tax return.

However, if you want to make a pre-tax IRA contribution, ensure that you report it on your return before filing. You still have up until April 15th to make the actual contribution – but you want to be sure to report it on your return so you get the tax deduction and the tax basis of the pre-tax account is properly reported. If you already filed and failed to make (or report) your pre-tax contribution, you may wish to amend. Again, work thru that fact pattern with your tax and financial advisor.

Best of luck during the home stretch of tax season!

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