Can I make an end-of-year IRA contribution?

Steve Hartel, December 15, 2023

As the end of the year approaches, are there things you might do to increase your traditional or Roth IRA contributions for 2023? Yes, no, and maybe.

First, let’s explore what the traditional and Roth IRA annual contribution limits are. For 2023, people under age 50 can contribute a maximum of $6500 to all their IRA accounts combined. People age 50 and up can take advantage of the $1000 catch-up provision and contribute a total of $7500. It’s important to note that this limit applies to all of your IRAs combined, not to each one separately. So, if you haven’t yet reached those limits, then YES, there is a good chance you can contribute more right now. Conversely, if you have already reached those limits, then NO, you can’t contribute any more to your IRAs this year.

The next thing to note is that December 31 is not the deadline for contributing to your IRA for 2023. The IRS allows you up until you file your 2023 tax return, or April 15, 2024, whichever is earlier. In my experience, however, it is better to think of December 31 as the deadline so that you aren’t “stealing” your planned 2024 contributions for 2023. Try to find that extra 2023 money during 2023, which will ease the burden on your 2024 dollars. By the way, the contribution limits for traditional and Roth IRAs are increasing by $500 for 2024. So, for those under age 50, the new limit will be $7000, and for those age 50 and up, it will be $8000. If your limit is $7000, that’s $583.33/month. If your limit is $8000, that’s $666.66/month. If you set up automatic monthly contributions, you never have to worry about finding extra money near the end of the year.

Where does the MAYBE fit in? Several places. First, you can only contribute earned income into an IRA. So, if your child earned $2000 in their summer job, they can’t contribute any more than that into their IRA. (Parental note: having your child start a Roth IRA is one of the smartest and most beneficial things you can do for them!) This rule does not apply to a non-working spouse in a marriage, where the working spouse can provide the funds for both spouses to contribute.

The second MAYBE has to do with income limits. The Roth IRA is such a good deal that the IRS only lets people below a certain income level contribute to it. For a single individual, your ability to contribute to a Roth IRA starts being reduced when your AGI (Adjusted Gross Income) reaches $138,000, and is eliminated completely when your AGI hits $153,000. For married couples filing jointly, those figures are $218,000 and $228,000, respectively.

The third MAYBE applies to traditional IRAs, and determines not how much you can contribute, but whether or not the contribution is deductible. For people who are covered by a retirement plan at work, singles start losing the ability to deduct their traditional IRA contributions when their AGI reaches $73,000, and they lose it completely when their AGI hits $83,000. For married couples filing jointly, those figures are $116,000 and $136,000, respectively. The figures are different for married couples filing jointly where one spouse is covered by a retirement plan at work, but the other spouse is not.

Tax rules can be complicated, and there is a special tax on excess IRA contributions, so be sure to consult a tax professional. As a financial planner, I am in regular communication with my clients’ tax preparers, so that we can coordinate tax strategies and try to optimize our clients’ tax situation. If your current financial advisor isn’t talking to your CPA, I’d be asking why not (or maybe changing advisors!).

Investment advisory services offered through Maia Wealth-Steve Hartel, a Registered Investment Adviser. Content in this article is for informational purposes only. Opinions expressed herein are subject to change without notice. Maia Wealth/Steve Hartel has exercised all reasonable professional care in preparing this information. Some information may have been obtained from third-party sources we believe to be reliable; however, Maia Wealth has not independently verified, or attested to, the accuracy or authenticity of the information. Nothing contained herein should be construed or relied upon as investment, legal, or tax advice. An investor should consult with their financial professional before making any investment decisions.