FINANCE | You have more time to fully fund the IRA | Latest news

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Jennifer Barrett (AAMS) is a local Edward Jones Financial Advisor. One final point: If you’ve already filed your taxes but would still like to claim the extra tax benefits provided by IRA contributions or retirement plan recontributions, you may be able to file an amended return, so check with your tax advisor. In any case, look for ways to benefit from the tax-advantaged opportunities available to you. 225-612-0413 | jennifer.barrett@edwardjones.com

What if you own a small business or, like many people this past year, struck out on your own and became self-employed? News owners who file as sole proprietors also have until May 17 to contribute to, or open, a SEP IRA. (You might qualify for an extension until Oct. 15.) An SEP IRA is similar to a traditional IRA in that contributions are tax deductible and earnings grow tax deferred. For the 2020 tax year, you can contribute the lesser of 25% of your compensation or $57,000. However, special rules govern the maximum deductible contributions, so consult with your tax advisor before finalizing the amount you put in. Also, keep in mind that your estimated taxes for the first quarter of 2021 will still be due on the original April 15 date. And your earnings grow tax-deferred until you start taking withdrawals, typically during retirement. With a Roth IRA, your contributions aren’t deductible, but earnings can grow tax free if you’ve had your account at least five years and don’t take withdrawals until you’re 59½ or older. Eligibility for a Roth IRA also phases out at higher income levels.

There’s one more area in which the new tax-filing deadline offers you an opportunity: “recontributions” to your retirement plans, such as your IRA and 401(k). In 2020, withdrawal rules were loosened for these accounts for individuals financially affected by the pandemic, and if you took money out, you could spread the taxes over three years. However, during that time, you can recontribute all or part of the withdrawals. And any money you do recontribute before the tax filing deadline of May 17 (or later, if you get an extension) can be excluded on your 2020 tax return, possibly reducing your taxes. So, your recontribution can provide you with more money in your retirement accounts and a tax break today. If you have a traditional IRA, your investment dollars are typically tax deductible. So, for example, if you are in the 24% tax bracket, and you put in the full $6,000, your contribution for the 2020 tax year would only “cost” you $4,560, because you’d be able to deduct $1,440 from your taxable income. (Deductibility is gradually phased out at certain income levels.)

Source www.livingstonparishnews.com

Edward Jones, its employees and financial advisors are not estate planners and cannot provide tax or legal advice. You should consult your estate-planning attorney or qualified tax advisor regarding your situation. Edward Jones. Member SIPC.

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