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Investor Insights Blog|What to Know About IRA Tax Deductions – and Other Tax-Time Reminders

Tax-Advantaged Accounts

What to Know About IRA Tax Deductions – and Other Tax-Time Reminders

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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 $7,000 per year when under the age of 50 to either a Roth or Traditional IRA in 2024 (or $6,500 for 2023). If you’re 50 or older, you can contribute up to $8,000 ($7,500 in 2023) with the $1,000 catch-up contribution.

You cannot exceed $7,000/$8,000 across any combination of Traditional IRAs and Roth IRAs. In other words, you cannot establish multiple accounts to attempt to contribute more than the $7,000/$8,000 limits.

Are you self-employed? Consider the opportunity to contribute up to 20 percent of your self-employment income, up to $69,000 in 2024 ($66,000 in 2023), 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 2023 in preparation for return filing.

Little-known catch-up rule that could help you double your contribution, save on taxes for 2023

Something savers might not know: if you have not already made a full IRA contribution in 2023, you can still contribute, provided you do this before April 15, 2024. In other words, you could make a double contribution between January 1 and April 15: one for 2023 and one for 2024.

Real estate investors looking to generate more capital for real estate deals in a self-directed IRA can potentially build their balances quickly in a short period of time.

Can you contribute to a 401(k) with an employer and contribute to an IRA?

Yes, you may make contributions to a 401(k) and an IRA. You do have to be mindful of the income limits with regards to taking a deduction to your Traditional IRA.

For instance, a full deduction is available if your modified adjusted gross income (AGI) is $123,000 or less for 2024 (if married, filing jointly). A partial deduction is available for incomes between $123,000 and $143,000 for 2024.

A deduction is not available for incomes greater than $143,000 for 2024. “Earned income” refers to income that you are paying payroll taxes on (Medicare and social security) along with ordinary income taxes.

Should you consider a Roth IRA?

The Roth IRA is funded with after-tax dollars and grows tax-free, with tax-free distributions providing the taxpayer is over 59½ and the account has seasoned for five years.

Imagine applying the laws of compounding interest: no taxes on growth and no taxes coming out!?

For example, an investor put a storage facility (real estate) under contract with an option, using his Roth IRA, with only a $5,000 deposit. He then assigned the option contract to another investor and received $20,000 in tax-free profit back into his Roth IRA.

A question we commonly receive about the Roth IRA: If I make too much money, may I contribute to a Roth IRA? This is in reference to Adjusted Gross Income Limits (MAGI).

If you’re single and make over $161,000 MAGI, you are not permitted to contribute at all, while those with slightly lower MAGI can contribute a percentage of the contribution limit. When married filing jointly, the MAGI limit for making a contribution is $240,000.

These limits apply to 2024, so check the updated MAGI limits via IRS.gov for the year in which you intend to make a contribution.

If you earn too much to make a Roth contribution, you can potentially deploy what is known as the backdoor Roth IRA contribution approach. This is when investors make a contribution to a Traditional IRA and then immediately convert to a Roth IRA. Speak with your CPA or accountant regarding this movement of funds.

What do investors need to know about changes to the tax code?

Contribution limits and income limits for Roth IRAs often change, so it is important to keep up on this.

You also need to be aware of the SECURE Act, which went into effect January 1, 2020. The most notable changes to retirement accounts, among others, are:

  1. Required Minimum Distribution (RMD): RMD age for IRA holders was increased from 70½ to 72. Once you turn 72, you are required to distribute a percentage of your IRA. This is based on the life expectancy rate published by the IRS. You can visit IRS.gov to find this table and perform the calculations accordingly. For self-directed investors with alternative investments such as real estate, notes, trust deeds, private placements, or gold and silver in their portfolios, you may want to examine the cash flow of these investments to ensure you can satisfy the RMDs. It may be possible to distribute a portion or an entire alternative asset if needed.
  2. Traditional IRA contributions: Prior to the SECURE ACT, if you were over 70 ½ years of age, you were not permitted to make a contribution to a Traditional IRA. This was lifted under the legislation.
  3. Inherited IRAs: The SECURE ACT forces inherited IRAs that are inherited January 1, 2020 and beyond, to be distributed within 10 years of inheriting the account. The only exception to the 10-year rule is for minors inheriting an account.

Note: There are more changes on the way as a result of the legislation known as SECURE Act 2.0.


Am I eligible to make a contribution? How much can I contribute?

The IRS publishes maximum IRA contribution limits and catch up provisions each year. Summaries for each type of contribution can be found on Contribution Limits.


Is the 990-T separate from the individual tax return?

Yes. The IRA will need to establish its own EIN to file 990-T. This number separates the IRA from the owner’s Social Security Number, which is used in the individual tax return.

The IRS will more easily be able to separate your individual tax filings from the IRA’s tax filings.

The 990-T is a separately filed return, though due at the same time, and should not be combined with that of the IRA owner’s individual return.

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