There’s still time to invest in retirement, health and college plans — and take the tax deductions for the 2017 calendar year. Here’s how.
You have until April 17, 2018 (the IRS deadline), to max out your IRA contributions for accounts opened in 2017. For those age 50 and over, the contribution limit is $6,500; for those under 50 it’s $5,500.
If you are not covered by a retirement plan at work, the full amount of your contribution to a traditional IRA is deductible. With a traditional IRA your earnings grow tax-deferred until withdrawn. However, with a Roth IRA your contributions are made with after-tax money; as such, withdrawals from your contribution (basis) amount are always tax-free.
If your employer does offer a plan, the deductible amount is determined by your income. Remember that contributions to Roth IRAs are not deductible.
If your IRA contribution exceeds the limit, you have until your tax filing deadline, including an automatic six month extension, to withdraw it. This means you generally have until October 15 to withdraw the excess. Otherwise, the excess amount is taxed at 6% per year as long as it remains in the account. If you remove the excess amount after you file your taxes, you may need to file an amended tax return.
33% of Americans invest in an IRA.
If you have a health savings account (HSA) you might want to consider adding to it before April 17. Like contributions made to an IRA, money you invest in an HSA isn’t taxed. If the money you contribute to your HSA is deducted from a 401(k) with your employer, the deduction is made pre-tax.
Before opening an HSA, however, check to see if you are eligible. There are several criteria: First, you must have a high-deductible health plan (HDHP). For 2017 the minimum deductibles were $1,300 for self-coverage and $2,600 for family coverage. Before you open an HSA, however, you must determine if you can afford the HDHP. In 2017 the maximum out-of-pocket expenses that could be incurred with an HDHP were $6,550 for self-coverage and $13,100 for family.
Note that contributions to your HSA can be made through April 17, but only if you were enrolled in the program prior to December 1, 2017.
Here’s where last-minute tax deductions can get a little tricky. In most states, contributions to 529 college savings accounts must be made by December 31 of the tax year.
But in some states — Georgia, Mississippi, Oklahoma, South Carolina and Wisconsin — plan participants can make 2017 contributions up until April 15, 2018. Oregon’s 529 plan extends the deadline until April 16, and Iowa’s plan permits participants to make contributions to accounts opened in 2017 through April 30, 2018.
Payment limits vary among these states, so be sure to check with your tax advisor about how much of your contribution is deductible.
You can contribute up to $15,000 ($30,000 for married couples) annually without gift-tax consequences. Under a special election, you can invest up to $75,000 ($150,000 for married couples) at one time by accelerating five years’ worth of investments.
Even though you can make these contributions to help your 2017 tax returns, it’s not too early to begin planning for 2018. Ask your financial advisor to help you map out next year’s contributions.
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.