Still planning to make contributions to your individual retirement and health savings accounts for 2020? You just got an extra month to make it happen.
The deadline to make 2020 contributions to individual retirement accounts (IRAs), Roth IRAs and health savings accounts (HSAs) is pushed back to May 17 from April 15, the IRS announced Monday. The deadline extension also applies to 2020 contributions to Archer Medical Savings Accounts (MSAs) and Coverdell education savings accounts (ESAs), as well as paying taxes on 2020 distributions from IRA or work-based retirement plans.
The announcement comes over a week after the IRS postponed the federal income tax deadline to May 17 from its usual April 15. While the federal income tax and IRA/HSA contribution deadlines have been extended, quarterly estimated tax payments are still due on April 15, the IRS reaffirmed Monday.
If you haven't already made a contribution to an IRA, Roth IRA or HSA for last year, this is a good opportunity to do so. A traditional IRA, like an employee-sponsored 401(k), allows your investments to grow on a tax-deferred basis until the money is withdrawn. A Roth IRA is taxed upfront, so your investments grow tax-free.
An HSA is another powerful, tax-advantaged savings vehicle that allows you to save pre-tax dollars for future medical expenses. They're typically available to people with qualifying high-deductible insurance plans. HSAs have a triple tax advantage because — in addition to making tax-deductible contributions — they allow savers to accrue tax-free earnings and make tax-free withdrawals for qualified medical expenses. Bonus: the IRS just announced Friday that amounts paid toward personal protective equipment (PPE) for “the primary purpose of preventing the spread” of COVID-19, like masks and hand sanitizer, are now eligible to be paid or reimbursed through HSAs.
In addition to saving towards your future, contributing to an IRA or HSA is a way to lower your adjusted gross income. Reducing your income could allow you to snag a third stimulus check — or get more money — if you're on the cusp of eligibility. It also typically means a smaller tax bill.