With the tax-filing deadline just a few days away, we thought we better give you a brief rundown of the financial moves you should be considering over the next week, if you haven’t already.
Here are the time-sensitive accounts to which you may want to contribute, and why you might benefit from quickly moving some money there.
IRAs and Roth IRAs
You (or your spouse) must have earned income in 2015 to contribute to either an IRA or Roth IRA. But the ability to make a tax-deductible IRA contribution can be limited or eliminated if you or your spouse also were covered by a retirement plan at work.
Your chance to make a Roth IRA contribution is also affected by your income. If your adjusted gross income is over certain amounts, you’re out of luck. See tinyurl.com/contlim for more information on the income restrictions for Roth IRA and IRA contributions.
Whether it’s an IRA or Roth IRA, you can contribute the lesser of your earnings, or $5,500. If you were 50 or over in 2015, that figure jumps to $6,500. Don’t forget that a contribution can be made for a non-earning spouse, in the same amounts.
An IRA contribution will save you about ten to forty cents in taxes for every dollar you contribute, and shelter any investment earnings made by the money in the IRA until you withdraw it, at which time the money pulled out will be taxed as ordinary income.
A Roth IRA generally doesn’t provide an immediate tax break, but you can generally withdraw the proceeds tax-free in retirement, and the contributions at any time and for any reason before or after retirement without a penalty.
Lower-income taxpayers who contribute to any kind of retirement plan may be able to benefit from the Saver’s Credit. Go to tinyurl.com/savcred to see if you qualify.
The deadline for 2015 IRA and Roth IRA contributions is Monday, April 18 of 2016 (due to a holiday occurring on April 15th).
Usually the deposit will qualify if it’s sent via regular mail and is postmarked by the April 18th deadline. If you’re concerned you can’t get it mailed in time, consider stopping by a local bank or credit union to open an IRA or Roth IRA, and make the deposit.
Health savings accounts
If you’re covered by a high-deductible health insurance plan (for 2015, one with a deductible of at least $1,300 for singles and $2,600 for families), you have until the aforementioned April 18th to make a tax-deductible contribution to a health savings account (HSA).
For 2015 the HSA contribution limits are $3,350 for individuals and $6,650 for families. Remember that money contributed to an HSA is not subject to “use it or lose it” rules.
Any unused contributions roll over to the next year. Once you reach age 65, any money left in the HSA can be withdrawn for any reason, and will be taxed as ordinary income (just like if it were taken from an IRA).
To find an HSA provider, check your local bank or credit union, or visit hsasearch.com.
Edvest, the state of Wisconsin’s 529 college savings plan, offers a small state income tax break to state residents who fund accounts.
When you make a deposit to an Edvest account by this April 18th, your state taxable income will be reduced dollar-for-dollar for up to $3,100 per beneficiary. For instance, if you have two children and deposit $3,100 each in an Edvest account for each of them, your state taxable income will be reduced by $6,200—maybe saving you a few hundred dollars in state income taxes.
For more information contact your financial institution or advisor, or go directly to the Edvest website (www.edvest.com).
As we mentioned above, Monday, April 18th is the deadline to file and pay your 2015 income taxes. So we’ll tell you what you can and should do if you can’t file your tax returns by that date, or pay the taxes that you owe.