The tax filing deadline is fast approaching, which means
time is running out to fund an IRA for 2023. If you had earned
income last year, you may be able to contribute up to $6,500
for 2023 ($7,500 for those age 50 or older by December 31,
2023, $1,000 of which is considered a catch-up contribution)
up until your tax return due date, excluding extensions. For
most people, that date is Monday, April 15, 2024.
You can contribute to a traditional IRA, a Roth IRA, or both.
Total contributions cannot exceed the annual limit or 100% of
your taxable compensation, whichever is less. You may also
be able to contribute to an IRA for your spouse for 2023, even
if your spouse had no earned income.
Traditional IRA contributions may be deductible
If you and your spouse were not covered by a work-based
retirement plan in 2023, your traditional IRA contributions
are fully tax deductible. If you were covered by a work-based
plan, you can take a full deduction if you're single and had
a 2023 modified adjusted gross income (MAGI) of $73,000 or
less, or married filing jointly with a 2023 MAGI of $116,000 or
less. You may be able to take a partial deduction if your MAGI
fell within the limits below. You may not take any deduction if
your MAGI is above the upper limits here:
- Single/Head of household $73,000 - $83,000
- Married filing jointly $116,000 - $136,000
- Married filing separately $0 and $10,000
If you were not covered by a work-based plan but your spouse
was, you can take a full deduction if your joint MAGI was
$218,000 or less, a partial deduction if your MAGI fell between
$218,000 and $228,000, and no deduction if your MAGI was
$228,000 or more.
Consider Roth IRAs as an alternative
If you can't make a deductible traditional IRA contribution,
a Roth IRA may be a more appropriate alternative. Although
Roth IRA contributions are not tax-deductible, qualified
distributions are tax-free. You can make a full Roth IRA
contribution for 2023 if you're single and your MAGI was
$138,000 or less, or married filing jointly with a 2023 MAGI of
$218,000 or less. Partial contributions may be allowed if your
MAGI fell within the limits below. You may not contribute to a
Roth IRA if your MAGI is above the upper limits here:
- Single/Head of household $138,000 - $153,000
- Married filing jointly $218,000 - $228,000
- Married filing separately $0 - $10,000
Tip: If you can't make an annual contribution to a Roth IRA
because of the income limits, there is a workaround. You can
make a nondeductible contribution to a traditional IRA and
then immediately convert that traditional IRA contribution
to a Roth IRA. (This is sometimes called a backdoor Roth
IRA.) Keep in mind, however, that you'll need to aggregate
all traditional IRAs and SEP/SIMPLE IRAs you own — other
than IRAs you've inherited — when you calculate the taxable
portion of your conversion.
A qualified distribution from a Roth IRA is one made after the
account is held for at least five years and the account owner
reaches age 59½, becomes disabled, or dies. If you make an
initial contribution — no matter how small — to a Roth IRA
for 2023 by your tax return due date, and it is your first Roth
IRA contribution, your five-year holding period starts on
January 1, 2023.
If you are unsure if your MAGI is below the limit to contribute
to a Roth IRA for the current year, a good best practice would
be to wait until the tax deadline in the following year to make
a prior year contribution as well.
CNB Wealth Management is here to help. Reach out to your
Relationship Manager for assistance and guidance regarding
prior year contributions. Many taxpayers are unaware that
they can make a prior year contribution to a Traditional
or Roth IRA. If you can make a deductible Traditional IRA
contribution, you’ll save some money on taxes, too.
This material is provided for general information purposes only. Investments and insurance products are not FDIC insured, not bank deposits, not obligations of, or guaranteed by Canandaigua National Bank & Trust or any of its affiliates. Investments are subject to investment risks, including possible loss of principal amount invested. Past performance is not indicative of future investment results. Before making any investment decision, please consult your legal, tax or financial advisor. Investments and services may be offered through affiliate companies.