Making the most of IRAs

Did you know that you have until the tax filing deadline to complete contributions to your Individual Retirement Account (IRA) for the previous tax year? Following are friendly reminders around IRAs as well as two strategies that I advised some clients incorporate into their financial plans before filing their 2023 tax returns. If you wonder whether these are applicable to your situation, let's talk.

Friendly reminders around IRAs

• For 2023, the maximum an individual under 50 can contribute to a spousal IRA is $6,500; someone who is 50 or older can contribute $7,500.
• If you'd like to contribute to your IRA for tax year 2024, you can do this any time up until the tax filing deadline which will be in April 2025. The 2024 maximum limits have increased to $7,000 and $8,000 respectively.
• Generally, you need earned income to contribute to an IRA and you cannot contribute more than your earned income to your IRA.
• While the IRS generally allows individuals who earn income to contribute to their IRAs, the IRS limits who can take current tax-year deductions for their contributions.

Strategy 1: Spousal IRA

Consider this strategy if your family has a spouse that does not earn income and you'd like to supercharge your retirement savings.

While it is generally true that you need earned income to contribute to an IRA, spousal IRAs are an exception to this rule available to couples who file joint tax returns. In brief, as long as one partner in a couple earns income that exceeds the amount that the couple, together, contributes to their retirement accounts, then each member of the couple can contribute to his or her respective retirement account.

Strategy 2: Non-deductible IRA

Consider this strategy if your income exceeds IRS limits to make tax-deductible IRA contributions and/or you want to save as much money as possible for retirement in a tax-advantaged way.

When an investor makes a non-deductible IRA contribution, she does not benefit immediately from a tax break. She puts after-tax dollars into her IRA so that it grows in a tax-deferred way over time. This approach is not for everyone; careful recordkeeping and documentation are required over time. For each tax year a non-deductible IRA contribution is completed, individuals need to include Form 8606 in their federal tax returns. And when taking distributions from the IRA in retirement, investors need to work with their tax preparer to account for how much of their distribution is nontaxable (i.e.: based on cumulative after-tax contributions) and taxable (based on money after tax contributions earned over time.)

Making the most of your financial choices?

Curious whether you are making the most of your retirement savings opportunities? Wonder whether there might be other financial strategies relevant to you that you are missing? Contact me; let’s talk about your current approach and whether I can be helpful.

Caroline Wetzel is a CERTIFIED FINANCIAL PLANNER TM (CFP?) and Vice President, Private Wealth Advisor with Procyon Advisors LLC. Procyon Advisors, LLC is a registered investment advisor with the U.S. Securities and Exchange Commission (“SEC”).?This article is provided for informational purposes and may also include opinions and forward-looking statements which may not come to pass. Information is at a point in time and subject to change. Procyon Advisors, LLC does not provide tax or legal advice. https://www.procyonpartners.net/team/caroline-wetzel/