3 things to know about IRA contributions

Retirement plan paperwork on a desk

Before putting money into your Traditional, Roth or SEP individual retirement account (IRA), you should know the maximum amount you can contribute, how to contribute and how to make catch-up contributions if you’re eligible.

Contribution rules

The Internal Revenue Service (IRS) has general rules for annual contributions to IRAs. One of the most important rules is that you have until the tax filing deadline of the current year — usually April 15 — to make contributions to an IRA for the previous calendar year. Other rules vary by the type of IRA you have.

Traditional IRA. You can deposit the maximum contribution amount into your Traditional IRA annually, until the year you turn age 70½, as long as you have earned income. If you contribute more than the limit, you’ll have to pay an excess contribution tax.

Roth IRA. Since Roth contributions are not tax-deductible, you can make them at any age while you have earned income, up to the IRS annual contribution limits.

Here’s how these two types of IRAs are the same: You can contribute as much as $6,000 ($7,000 if you’re age 50 or older) to your Traditional or Roth IRA in 2019. That’s more than you could contribute annually in the past few years.

SEP IRA. If you’re an employee with a Simplified Employee Pension (SEP) IRA, your employer decides annually what percentage of your income to contribute to your account. If you’re the employer, you must contribute an equal percentage to all eligible employees. If you’re self-employed, use this IRS calculator to figure out your contributions and deductions. 

Catch-up contributions

Perhaps in the past, you weren’t able to save as much as you would have liked to your retirement fund. Here’s where the IRS offers a little help. If you’re age 50 or over, you can make additional contributions beyond the normal IRS limits. Just be sure to make your catch-up contributions before the tax filing deadline so it counts for the prior calendar year.

Make contributing easier for yourself

When you get paid, it’s a good idea to set up an automated recurring transfer to your IRA for convenient, consistent contributions to your retirement. If you don’t have the money in hand, you won’t be tempted to spend it.

The advice provided is for informational purposes only. Contact your financial advisor for additional guidance.

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