Most of us couldn’t wait to put 2020 behind us and start the new year. But there is still time for you to make 2020 better, at least as far as your income taxes and retirement savings are concerned. You can make an IRA contribution for tax year 2020 until May 17, 2021.
You can contribute up to $6,000 to your traditional and Roth IRAs for 2020 ($7,000 if you’re age 50 or older) as long as you have earned income to support the contribution. If you’re married, filing a joint tax return, and only one of you has earned income, you may still fully fund two IRAs (for a total contribution of $12,000 – $14,000 depending on your ages). Earned income includes salaries, wages, tips, professional fees, bonuses, commissions, and other amounts you receive for providing personal services.
Contributing to a traditional IRA can also lower your tax liability for 2020 if you are eligible to take a tax deduction for the contribution. This deduction is available whether you itemize deductions or take the standard deduction on your federal income tax return.
Taking a Deduction for a 2020 Traditional IRA Contribution
You are eligible for a full deduction if you (and your spouse if married) do not participate in an employer’s retirement plan, like a 401(k) plan. If either of you does participate in a workplace retirement plan, you are eligible for a tax deduction if your modified adjusted gross income (AGI) falls within the following ranges:
| If you participate in an employer's retirement plan |
Your Filing Status Is |
Your Modified AGI Is |
Your Deduction Eligibility Is |
| |
Single or head of household
|
$75,000 or more
$65,000 – $75,000
$65,000 or less
|
Not deductible
Partially deductible
Fully deductible
|
| |
Married, filling jointly |
$124,000 or more
$104,000 – $124,000
$104,000 or less
|
Not deductible
Partially deductible
Fully deductible
|
| If you participat in an employer's retirement plan |
Your Filing Status Is |
Your Modified AGI Is |
Your Deduction Eligibility Is |
| |
Married, filling jointly |
$206,000 or more
$196,000 – $206,000
$196,000 or less
|
Not deductible
Partially deductible
Fully deductible
|
If your modified AGI exceeds the limits for being eligible to take a deduction, you may still contribute to a traditional IRA; you just won’t get the tax break for 2020. But you will still be boosting your retirement savings. And nondeductible contributions (excluding earnings) are tax-free when you take them out of your IRA. This can help build your reservoir of nontaxable retirement income.
Being Eligible to Contribute to a Roth IRA for 2020
You may choose to make a Roth IRA contribution in addition to or instead of a traditional IRA contribution for 2020. All traditional and Roth IRA contributions are subject to the annual limit, but you may split contributions between your IRAs however you choose. Roth IRA contributions are never tax-deductible, but they are always distributed tax-free from the Roth IRA. Investment earnings may also be distributed tax-free in a qualified distribution. Roth IRAs are a valuable tool in diversifying the tax status of your retirement income.
Although there are no deductions allowed for Roth IRA contributions, you must meet the eligibility requirements to contribute to a Roth IRA. These are
- having earned income to support your contribution, and
- making sure your modified AGI falls within or below certain levels.
| Filing Status for 2020 |
Modified AGI |
Contribution Eligibility |
| Single or head of household |
$139,000 or more
$124,000 – $139,000
$124,000 or less
|
Not eligible
Partial contribution
Full contribution
|
| Married, filing jointly |
$206,000 or more
$196,000 – $206,000
$196,000 or less
|
Not eligible
Partial contribution
Full contribution
|
To learn more about IRA contributions...
Contact the Mainstar Trust team at 1-800-521-9897 or customerservice@mainstartrust.com.