Although most of the significant tax saving opportunities needed to be done prior to December 31, 2016, there are still several tax beneficial contributions that can be implemented before April 15th to ease your tax burden. Listed below are a couple items you should consider when preparing your taxes:
Make an IRA Contribution –
You are allowed to make an IRA contribution for the previous calendar year up until April 15th of the following year.
- In 2017, you can contribute $5,500 ($6,500 if over 50) to an IRA or Roth IRA.
- A Roth IRA should be your first choice. Earnings grow tax free, you avoid required minimum distributions, and if you need to make a distribution, it is tax free as well (assuming you are over 59.5). For long-term savers no other account offers better benefits except…a Health Savings Account (more below)
- You have a few options to get money into a Roth IRA:
1. Normal Contribution – If your Modified Adjusted Gross Income is less than $118,000 ($186,000 if married filing a joint return) you can contribute directly to a Roth IRA.2. Back Door Roth Contribution – if your income exceeds the thresholds above there may be another option. If you do not already have an IRA, you can make an after-tax contribution to an IRA and then convert the IRA to a Roth IRA. If done correctly, no tax is due on the conversion and even at high income levels you are able to get money into a Roth IRA.
Contribute to a Health Savings Account –
If you have a qualified High-Deductible Health Insurance Plan, you can contribute to a Health Savings Account (HSA).
- For 2017, you have until April 15th to contribute $3,400 for an individual or $6,750 for a family (if over the age of 55, you can contribute an extra $1,000).
- Not only are contributions 100% tax deductible but like a Roth IRA, balances grow tax-free and withdrawals from an HSA are completely tax-free as well. The only catch is withdrawals must be used for medical expenses in order to be tax-free.
- HSAs are great savings accounts that can be invested and used to exclusively cover medical expenses in retirement. After age 65, you can even use an HSA to pay for Medicare premiums.
As you work to complete your taxes before April 15th, you may want to look into either of these tax beneficial contributions as a way to improve your 2017 tax situation.