IRA Eligibility and Deadlines
As the tax filing deadline of April 15th gets ever closer, many savers are looking for last minute tax deductions to reduce their tax bill for the 2024 tax year. And, there may be some things you can still do prior to the filing deadline that might help.
Tax Deductible IRA or SEP IRA Contributions
The main option for most is to make a deductible contribution to an IRA or SEP IRA. However, as with most things financial and tax related, there are rules around who can contribute and whether or not you get a tax deduction for that contribution. The first question to ask is, are you an active participant in your work plan? In many cases, you are already getting your maximum tax deduction via that plan. Your modified adjusted gross income may also affect your ability to take a deduction. Take a look at the flow chart below (note that these are 2024 numbers).
Most CPAs and tax filing software will suggest that you make some sort of contribution if you are eligible. Even if you plan to file an extension, you still must make your IRA contribution by April 15th, 2025. The maximum contribution limit for 2024 is $7,000 if you are under age 50 and $8,000 if you are age 50 or older. Note that this is a combined limit for both Traditional and ROTH IRAs.
SEP IRA Contributions
SEP IRAs, on the other hand, do allow for contributions to be made up until the end of the extension period. SEPs are most often used by small business owners with little to no employees, because all of the contributions are made by the employer. Further, the employer must contribute an equal percentage of compensation to all eligible employees.
Employers may contribute up to 25% of each eligible employee’s income, but no more than $69,000 per person for 2024. The maximum compensation that may be considered for the 25% limit in 2024 is $345,000.
Don’t Wait for the Last Moment to Contribute
Since I am writing this on 4/1 (April Fool’s Day), do not act like a fool and attempt to make your IRA contribution ON April 15th. I am saying this as a PSA (public service announcement) on behalf of all institutions that receive IRA contributions. You are taking a chance that something could go wrong that might delay the timing of the deposit.
Speaking of chance, that happens to be the name of the oddly designed (in my opinion) mascot of the Las Vegas Golden Knights hockey team. I was lucky (pun intended) enough to attend a game in Las Vegas recently and saw Chance pass by our section. Chance is a Gila monster and apparently was chosen over an actual knight mascot, because knights are not very child-friendly. I will let you judge for yourself, but I think the knight might have been a better choice!
Chance has already made his IRA contribution for 2024