Welcome to Extreme Investor Network, where we provide expert advice and unique insights on all things personal finance. As the tax deadline approaches, you may be wondering how to score a deduction with a pretax individual retirement account (IRA) contribution. If you qualify, there’s still time to make a last-minute move that could benefit your financial future.
For 2024, the IRA contribution limit has increased to $7,000, with an additional $1,000 for catch-up contributions for investors age 50 and older. You can still add money to your IRA for tax year 2023 before the federal tax deadline on April 15, but be sure to designate the deposit for that specific year.
Making a pretax IRA contribution for 2023 could qualify you for an “above-the-line” deduction, which can be claimed even if you don’t itemize your tax breaks. This deduction not only reduces your taxable income but also allows you to save more for retirement.
However, navigating the IRA deductibility rules can be complex. Your eligibility for a pretax IRA deduction depends on factors such as your filing status, modified adjusted gross income, and participation in a workplace retirement plan. If you don’t have a workplace retirement plan, there’s no income limit for IRA deductions, making it a potentially attractive option for higher earners.
On the other hand, if you do participate in a workplace retirement plan, the deductibility of your pretax IRA contributions can vary. The IRS provides an eligibility chart to help you determine how much you can deduct based on your filing status and income level. For instance, in 2023, single filers with a modified adjusted gross income of $73,000 or less qualify for a full deduction, while married couples filing jointly can take a full deduction up to $116,000.
Before making a last-minute contribution, it’s essential to consider your investing goals and timeline. While a pretax contribution may offer immediate tax benefits, it’s crucial to ensure that it aligns with your long-term financial objectives. Consult with a financial advisor to determine the best strategy for your individual situation.
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