Tax Day is only a week away, but you still have a chance to make one big tax-saving move—a tactic that could save many couples up to $2,750 on their 2017 taxes.
You don't even have to itemize to get the benefit. All you need to do is make an IRA contribution before the tax filing deadline, which is April 17 this year—reducing your taxable income, and therefore cutting the amount you'll owe in taxes, for 2017.
"You lower your tax liability and also help your retirement savings—two advantages in one move," says TurboTax's resident tax expert, CPA Lisa Greene-Lewis.
Note that this only applies to traditional IRAs. Because Roth IRAs are funded with after-tax dollars, you can't get a deduction for money saved in these accounts.
Deadline for IRA Contributions 2017
You have up to the April 17, 2018, tax deadline to contribute to a traditional IRA, says Greene-Lewis. Be sure to tell your account administrator that the money you're putting in counts for 2017 and not 2018. (If you fail to specify, most financial institutions will count it toward your 2018 funding limits—thus negating any tax benefits for this tax season.)
That said, it is a good idea to make the transfer into your IRA account a couple days before the deadline—especially if you're creating a brand new account.
"I would try to set your IRA contribution up before the weekend," says Greene-Lewis. "I wouldn't advise waiting until the actual tax deadline day. If you're going to go through all the effort, you want to be sure you get the deduction."
If you've already filed your taxes for 2017, but forgot to move funds to your IRA or claim the saver's credit before doing so, don't worry, you can file an amended tax return and still get your money back.
IRA Contribution Limits
The standard contribution limits for an IRA for 2017 are up to $5,500—although if you are 50 or older, the limit bumps up to $6,500. The tax benefits you'll reap from your IRA contribution depend on your income and on whether you're covered by a retirement plan at work.
If you have a retirement plan at work, are single and under 50, and your modified adjusted gross income is $62,000 or less, you can deduct your full contribution amount—cutting your federal taxes by roughly $1,375. If you're married filing jointly and under 50, that income threshold is $99,000, giving the two of you a $2,750 break in federal taxes if you both contribute your max.
Above those thresholds, you can take a partial deduction if you're below $72,000 for singles ($119,000 for married couples); the deduction disappears at higher modified adjusted gross incomes. To see a full breakdown of the limits, consult this IRS chart.
If you don't have a work retirement plan, you get more generous IRA contribution deduction limits. Single, head of household and widow(er) filers can take the full deduction no matter their modified adjusted gross income. Same goes for couples where neither spouse has access to a workplace retirement plan.
Married filers in which only one spouse has a workplace retirement plan can claim the full deduction if they have a joint modified adjusted gross income of $186,000 or less. A partial deduction can be had for couples with less than less than $196,000.
SEP-IRA Contribution Limits and Deadlines
Those who are self-employed should look into creating and funding a SEP IRA, says Greene-Lewis.
Much like a traditional IRA, these accounts will allow you to reduce your taxable income for 2017, but have more generous limits. If you're self-employed, you can put up to 25% of your salary, for a maximum of $54,000, in a SEP-IRA account for 2017.
SEP-IRA deadlines are largely the same as for a normal IRA—that is, you must make your contribution before Tax Day, April 17, 2018. But there's one key difference: If you file for an extension on your tax return, you have until that extension deadline—October 15, 2018—to make your contribution.
Again, you should give yourself a couple of extra days before the deadline to make your contribution, particularly if you will need to create a new SEP-IRA account.
Saver's Tax Credit
Another perk of stashing money in your IRA: the saver's tax credit, which is available to many low-income savers. Claim this and you'll be seeing double tax benefits.
The retirement savings contribution credit, commonly called the saver's credit, allows you to subtract up to $2,000 from your tax bill if you're a single filer—$4,000 if you're married filing jointly—depending on your adjusted gross income and the amount you socked away in a retirement plan or IRA.
The maximum benefit is available to singles with an adjusted gross income of $19,000 (or married couples with up to $38,000) who contribute $4,000 to a retirement savings; it phases out entirely for couples with adjusted gross income of $63,000 (or singles making half of that). To see if you qualify to claim the credit, consult this IRS table.