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Reminder: IRA Contribution Deadline for 2023 is April 15, 2024

Reminder: IRA Contribution Deadline for 2023 is April 15, 2024

April 08, 2024

An Individual Retirement Account (IRA) is a great way to grow your investments in a tax-intelligent way as you save for retirement. If you are not fully funding your traditional or Roth IRA, you might be missing out on major investment and tax reduction opportunities. In addition, as a business owner, there are IRA options available that could enhance your company’s benefits package.  

Let’s review the types of IRAs available, their benefits, and this year’s contribution deadlines. 

What are the types of IRAs available?  

Traditional and Roth IRAs are similar in that they are both retirement savings plans but differ in how they are taxed and how you can withdraw funds.  

  • Traditional IRA – Contributions to a traditional IRA are made on a pre-tax basis and may be tax deductible depending on your income and eligibility limits. This means you can deduct the amount you contributed to your traditional IRA from your taxable income for the year. This is a great option for individuals with a higher income, as this deduction may be enough to push you into a lower tax bracket. Keep in mind, when you withdraw funds from a traditional IRA, they will be taxed as income the year you make the withdrawal, including on any gains. In addition, the age at which you are allowed to make a withdrawal without a penalty is 59 ½.  

  • Roth IRA – Contributions to a Roth IRA are made after-tax and are not tax deductible; however, qualified withdrawals may be tax-free on both the contribution and the gains, and they offer more flexibility for withdrawals. This is an excellent option for younger investors with a lower income as they are being taxed at a lower rate. A major benefit of a Roth IRA is that withdrawals will be tax free on both the contribution and gains as long as you are 59 ½ and the account has been open for five years at the time of the withdrawal. In addition, with a Roth IRA, you can withdraw your contributions at any time (but not the gains) without taxes or penalties.  

  • SEP or Simple IRA – These are retirement plans for businesses and their employees. According to the National Institute on Retirement Security, less than half of all workers have access to a retirement savings plan through their employer. If offered, workers are 15 times more likely to save for retirement.  
    • A SEP IRA is designed for companies of any size and allows employees to contribute up to 25% of their pay. For businesses, a SEP IRA offers flexible annual contributions from the employer to the employee’s SEP IRA, as long as, the employer contributes to all employees equally. This is a good option to consider if a business’s cash flow various throughout the year.  
    • A Simple IRA is for companies with fewer than 100 employees, and it allows employers and employees to contribute to a retirement plan with a matching contribution. Employers have the option to do a 2% nonelective contribution or 3% of compensation matching contribution. The annual employee contribution limit for a Simple IRA for the 2023 tax year is $15,500. 

As a business owner, both SEP IRAs and Simple IRAs are great benefit options to consider for your employees.  

Traditional & Roth IRA Contribution Deadline & Limits 

The deadline to max out your IRA for the 2023 tax year is April 15, 2024.  

The maximum IRA contribution for the 2023 tax year is $6,500 per individual, or, if you are 50 or older, you can contribute up to $7,500. This limit includes if you have a traditional IRA and a Roth IRA, both must not exceed the maximum contribution combined.  

If you or your spouse contribute to a SEP IRA or a Simple IRA, you can contribute to your traditional or Roth IRAs separately. However, we recommend you contribute to your IRA (traditional or Roth) throughout the year to make the most of growth opportunities.  

We can help! 

It can take time and effort to determine if either a traditional IRA or a Roth IRA is right for you, or if a SEP IRA or Simple IRA is right for your business. We can help! Reach out to Couto DeFranco Wealth Management today to discuss your retirement and investment options, and we’ll help guide you and give you peace of mind in your financial position.