Tax Season: Important Actions to Take

Tax Season: Important Actions to Take

Tax season is upon us! As you know, that means you must file your taxes by April 15, unless you file for an extension. However, April 15 is also an important deadline for other financial matters.

April 15 is the deadline for making contributions to a Traditional or Roth Individual Retirement Account (IRA) for the tax year — in this case, 2015. If you did not make a contribution by December 31, 2015, you still have time. Unless you are subject to contribution phase outs*, you may contribute up to $5,500 (and an additional $1,000 if you are over the age of 50) to a Traditional or Roth IRA as long as you do it before the April 15 deadline.

Traditional and Roth IRAs have their tax benefits, but they differ from one another. With a Traditional IRA, you are able to defer taxes paid on earned income today and allow that money to grow tax-deferred. This can be beneficial especially if you expect your tax rates to decrease when you are older and in your retirement phase. As for a Roth IRA, you do not receive the tax deduction on today’s earned income, but the benefit is that your contributions grow tax-free. Roth IRAs are the better choice if you expect your tax rates to increase when you are in retirement and need to access the funds. The one caveat with IRAs, like most retirement accounts, is that you cannot gain access to the funds penalty-free before the age of 59½, with a few exceptions*. Before you make a contribution for 2015, be sure that you do not need that money for your current living expenses.

The tax benefits of contributing to a Traditional or Roth IRA are great, especially over a long-term horizon and if you are making regular annual contributions. So when you are filing your taxes for the April 15 deadline, do not forget to consider contributing to an IRA for 2015.

*If you have questions regarding the contribution phase outs,
exceptions to withdrawing funds from an IRA, or any other tax issue,
please contact your CPA.

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