I can sometimes be difficult to predict before December 31 how much you are allowed to contribute to your IRA for that tax year. Individual retirement account (IRA) contributions and their deductions are phased-out according to your modified adjusted gross income. Plus, you (or your spouse) are limited by your level of earned income or the IRA contribution deadline, which ever is smaller.
Because this information can be hard to gather before the year is done, the IRS extends the deadline for one tax year’s contributions one quarter into the year after and permits you to make so-called prior year contributions until the filing deadline.
These prior year contributions mean that you can fund your IRAs up to the maximum of your personal contribution limit or phase-out without having to make extravagant guesses.
Most tax professionals who discuss the prior year IRA contribution deadline say that you have until “April 15 or whenever you file your return.” This implies that if you have filed your tax return, you cannot make a prior year contribution to your IRA. However, I have recently learned that this way of talking about things is just a shorthand for a more complicated principle.
In actuality, you always have until the tax filing deadline to make your IRA contributions regardless of when you file. However, certain types of IRA contributions require some form of reporting on your tax return.
If you make a deductible traditional IRA contribution, then you will want to claim the traditional IRA deduction on 1040 Schedule 1, and if you make a nondeductible IRA contribution, as you do in the backdoor Roth strategy, then you need to report the new nondeductible basis on Form 8606. For this reason, it is best practice to fund your traditional IRA before filing your taxes, because otherwise you may need to amend your tax return.
In contrast, if you make a Roth IRA contribution, there is no additional reporting that must be added to your tax return. Your return is the same before and after your Roth contribution.
For this reason, you can fund your Roth IRA after filing your taxes. As Investopedia confirms, “You can contribute to a Roth IRA after filing your taxes and you don’t even need to amend your return to do so.”
This is particularly important as I write this in 2020, because the tax filing deadline has been extended for just this year to July 15, 2020. With the filing deadline extended so far, this is a great year to take advantage of your prior year Roth IRA contribution limit.
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