Tax Time Silver Linings
By Gary Silverman, CFP®
It’s that time of year again…tax time! Actually, it’s always tax time, we just think about it more as we’re filling out forms. This year, as you hopefully know, the tax filing date has been moved from April 15 (good thing, since it’s the end of April) to May 17. Time is also running out to fully fund your 2020 IRAs.
However, most of my readers reside in Texas or Oklahoma. The one nice thing about “Snowmageddon” and its accompanying power outages and bust pipes is that we get until June 15 rather than April 15 or May 17 to file. So, yay!
If you don’t remember (understandable as there’s a lot of tax laws to remember), you normally have from January 1 through April 15 of the following year to contribute to an IRA. Thus, with the new date, you have up through May 17 (or June 15) to fund your 2020 IRAs. (Of course, you can fund your 2021 IRAs as well if you’d like.)
Another change is the result of the SECURE Act. (And no, I don’t remember what “SECURE” stands for and I don’t even want to take the time to look it up.) It used to be that if you turned 70-1/2 or older you could no longer make Traditional IRA contributions. No more! Now, if you’re still making money, you can continue to make Traditional IRA contributions no matter how old you are (you could already do so with Roth IRAs).
As if all this tax stuff wasn’t already convoluted—You could be in a situation where you are taking Required Minimum Distributions (RMDs) but are still able to add new money.
Remember though, that to contribute to any type of IRA you must have “earned income”—basically a job. If you don’t have earned income, but your spouse does, that counts (isn’t that nice?). This allows both spouses the opportunity to add to their IRA holdings even if one is older and retired and the other is still working.
Want to, have enough earned income to allow it, but just don’t have the excess cash to contribute to an IRA? If you are a low-income family, there is a Saver’s Credit that can take $1 off your owed taxes for every $2 that you put into an IRA up to a $2000 contribution. Check the IRS.gov website, ask you tax professional, or Google it to see how it works and if you qualify.
And lastly, some people have investments, but no excess cash in the bank to fund new IRA contributions. In that case, if you have a regular taxable investment account, consider selling some of your holdings to free up the cash to contribute to your IRAs. You can then buy back in the same position if you’d like in the IRA account. Yes, the sales might cause you to pay some taxes on the gains, but the tax savings you’ll get going forward by having the money in an IRA is often worth it. (Ask you tax or financial advisor to make sure.)
Enjoy tax time!
Gary Silverman, CFP® is the founder of Personal Money Planning, LLC, a Wichita Falls retirement planning and investment management firm and author of Real World Investing.