As the tax season approaches, it’s important to keep in mind the contribution deadline for various retirement accounts. Whether you are planning to contribute to an IRA or a 401(k), missing the deadline can result in hefty penalties and missed opportunities for tax savings.
Let’s start by discussing Individual Retirement Accounts (IRAs). The contribution deadline for traditional and Roth IRAs is generally April 15th of the following year. For example, if you want to contribute to your IRA for tax year 2020, you have until April 15th, 2021, to do so.
However, it’s essential to note that there are some exceptions and special rules that apply. If you file your taxes before the April 15th deadline and discover that you could have made additional contributions to your IRA account, don’t worry; there is still time. You have until the regular due date of your tax return (generally October 15th) to make those extra contributions.
Another crucial thing to keep in mind when contributing towards an IRA is age limits. If you’re under age 50 at any point during a calendar year, then the maximum amount of money that can be contributed annually is $6,000. However, if you’re aged over fifty-five or more during any part of a given year known as “catch-up” contributions allow an additional $1k yearly limit on top of their standard annual limit ($7k).
On the other hand, employer-sponsored retirement plans like a 401(k) or similar plan typically have different deadlines than IRAs. Generally speaking: Contributions must be made by December 31st of each calendar year unless otherwise specified by your plan provider.
For employers who offer matching funds into their employees’ retirement accounts may also follow different rules regarding maximum contribution amounts annually set forth by Internal Revenue Service (IRS) guidelines which may differ from one another based on specific company policies as well as industry standards and regulations.
If you miss the 401(k) contribution deadline, there is no way to make up for it later. Therefore, it’s important to plan ahead and ensure that you make the maximum contribution amount allowed per year based on your employer’s rules.
It’s crucial to keep in mind that both IRAs and employer-sponsored retirement plans have maximum annual contribution limits set by the IRS. For traditional and Roth IRAs, the limit is $6,000 annually (or $7k if over age fifty-five), while for 401(k)s or similar plans, the figure is generally higher at $19.5k annually (for those under fifty years old) with an additional catch-up of $6k yearly limit if over age fifty-five or more during any part of a given year.
The good news is that contributing towards these accounts provides several tax benefits. Contributions made towards traditional IRAs are tax-deductible in most cases. On the other hand, contributions made toward a Roth IRA don’t provide immediate tax benefits but offer tax-free growth on earnings when withdrawn after reaching retirement age
Contributions made towards employer-sponsored retirement plans like 401(k)s are also eligible for tax savings as they reduce taxable income for employees. This means you will pay less in taxes now while potentially saving more money down the road due to investment earnings inside your retirement account.
In conclusion, missing deadlines can lead to penalties and missed opportunities regarding maximizing your contributions which ultimately leads towards reducing overall taxable incomes resulting in greater savings long term through investment growth within said accounts such as Traditional/Roth IRAs or Employer-Sponsored Retirement Plans like 401ks etc., so be sure not only know what deadlines exist but plan ahead too!