IRA Taxes in 2018: What You Need to Know

If you want to save on your taxes and put money aside for retirement, there's no better thing you can do than open an IRA. Different types of IRAs can give you different tax advantages, and it's critical to understand what you can and can't do with IRAs to see which account will do you the most good.

Below, we'll look at some common questions and concerns that come up with IRAs. By understanding the guidelines and potential pitfalls that can exist with IRAs, you'll be better able to evaluate how best to use these retirement savings tools in your own financial plan.

You have until mid-April to contribute

IRA contributions are due on the due date for your tax return for the particular year. For instance, for the 2017 tax year, you have until April 17 of this year to contribute to an IRA, because the traditional April 15 tax deadline falls on a weekend.

You can also double up on contributions by making one for the 2018 tax year as well. Yet you also have the option of waiting, with an ultimate deadline of mid-April in 2019 to get your IRA money in.

Contribution limits for traditional IRAs in 2018

In general, you can contribute the same amount for IRAs for the 2017 or 2018 tax year. If you're younger than 50 years old, then your limit is $5,500 per year. Those who are 50 or older can add an extra $1,000, making the total contribution limit $6,500.

Keep in mind, though, that you can't contribute more than the earned income you bring in during the year. The exception is for spouses, who are allowed to fund spousal IRAs without having income from a job or self-employment as long as their spouses have such income available.

Contribution limits for Roth IRAs in 2018

The basic limits for Roth IRAs are the same as for traditional IRAs. However, there are income tests that you have to pass in order to make full Roth contributions. As you can see below, if your income exceeds certain amounts, then your permissible Roth contribution can be reduced or even eliminated entirely.

Tax Filing Status

2017 Tax Year

2018 Tax Year

Single or head of household

$118,000-$133,000

$120,000-$135,000

Married filing jointly

$186,000-$196,000

$189,000-$199,000

Married filing separately

$0-$10,000

$0-$10,000

Are traditional IRA contributions always deductible?

Most traditional IRA contributions qualify for the tax deduction. If neither you nor your spouse if you're married has retirement plan coverage at work, then your full IRA contribution is always deductible. But those who do have access to a 401(k) or other employer plan either through their own work or their spouse's work are subject to income limits that can reduce or eliminate the deduction.

Tax Filing Status

2017 Tax Year

2018 Tax Year

Single or head of household

$62,000-$72,000

$63,000-$73,000

Married filing jointly

$99,000-$119,000

$101,000-$121,000

Married filing separately

$0-$10,000

$0-$10,000

Joint filers who don't have their own coverage but whose spouses are covered face higher limits. Full deductions are available with incomes up to $186,000 in 2017 or $189,000 in 2018. Phase-outs occur between $186,000 and $196,000 in 2016 and between $189,000 and $199,000 in 2017.

Again, you can always contribute to a traditional IRA. The value of doing so without an upfront deduction, however, is much less than with a deductible IRA, and some people choose not to contribute at all in these situations.

The right choice of IRA

For some, the income limits above will dictate whether you really have a choice between these two IRA types. If you can pick either, then the best move is whichever one will lead to the least taxes in the long run. Those in high tax brackets now should look closely at traditional deductible IRAs, while those in low brackets should prefer a Roth.

Either way, IRAs can be an important weapon in your efforts to fight for financial security in retirement. With only a month or so left to make contributions for the 2017 year, it's important to look to see whether IRAs deserve a more prominent role in your portfolio.

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