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Now is the time to think about how you can maximize your retirement account contributions. In addition to boosting your savings, there’s another potential benefit to contributing to your IRA during tax season: potential IRA tax deductions.
Roth IRA and Traditional IRA holders can make the most of their contributions at tax time. Assuming you are reporting enough earned income, you can contribute up to $6,000 when under the age of 50 to either a Roth or Traditional IRA. If you’re 50 or older, you can contribute up to $7,000 with the $1,000 catch-up contribution.
You cannot exceed $6,000/$7,000 across any combination of Traditional IRAs and Roth IRAs. In other words, you cannot establish multiple accounts to attempt to contribute more than the $6,000/$7,000 limits.
Are you self-employed? Consider the opportunity to contribute up to 20 percent of your self-employment income, up to $57,000, with the SEP IRA (Simplified Employee Pension plan). Like the Traditional IRA, this account is tax-deferred, which means the contributions are tax-deductible, making this account attractive to those seeking last-minute tax deductions for 2020 in preparation for return filing.
Little-known catch-up rule that could help you double your contribution, save on taxes for 2020
Something savers might not know: if you have not already made a full IRA contribution in 2020, you can still contribute, provided you do this before May 17, 2021. In other words, you could make a double contribution between January 1 and May 17: one for 2020 and one for 2021.