IRA Contributions Explained: Deadlines, Limits & Strategies

Lesley: Welcome everyone to our next webinar. Today I’m joined by Andrew Randisi and Christopher Mallon, and we’re gonna talk about IRA contributions. We’re coming up on the April 15th deadline to make your IRA contribution, so we wanted to make sure you all were aware of the deadline and the important numbers.

Chris, do you wanna take it away and get us started with IRA contributions?

Chris: Yeah, I’ll talk about limited deadlines, so I’ll let Andrew talk about some Roth nuances as well. So for your limits for 2026 and 2025, and while I’ll bring up both they are, if you are under the age of 50 for the year of 2025 is $7,000, and then for the year of 2026 is $7,500.

But if you’re 50 or older. For 2025, it’s $8,000, and then $8,600 for 2026. Reason why we’re talking about 2025 and 2026 contribution [00:01:00] limits is because you have up until you April 15th for your tax filing to make contributions for 2025. So say you forgot to make IRA contributions, all of, all of last year, you can still, retroactively make contributions for 2025 and save some money on taxes when you go ahead and and file.

Lesley: Yep. So you can do both right now, if you haven’t done 2025, you could do 2025 and ’26 right now. Yep.

Chris: Yeah, you can do both right now. I’d say it’s not, once you get on the pattern of waiting until tax time to file, it’s not uncommon for us to see people, okay, I’ll do 2025 contributions just so they can see what the, the tax bill and bite looks like.

They can use that as a little, lever. Come tax time to adjust it a little bit for that. And there’s some different rules around Roth ’cause there’s no, there’s no income limits. Andrew? For the IRAs you can do, it doesn’t matter what your, incomes are. It just depends that for Roth.

Correct?

Andrew: I believe there might be some contribu, there might be some income [00:02:00] limits.

Lesley: I think there is if you’re deducting, if you’re getting a deduction right.

Chris: Because that plays into then the back door office. That’s how that works.

Andrew: Yeah. That’s how that would work.

Yeah. So there, there are income limits when making an a traditional IRA deduction, depending upon where your, what your filing status would be. Single versus married, filing jointly versus married filing separately. Whether that deduction is either, and it also has to deal whether you are covered by a retirement plan or you’re not covered by a retirement plan.

Chris: Yeah.

Lesley: So you can make a traditional IRA contribution no matter what. It’s just whether or not you would get any deduction for it on your tax return.

Andrew: Correct.

Lesley: That’s depending on the, yeah,

Chris: And that won’t matter if you have 401k, access to a 401k through your employer or not.

Andrew: Or self or self-employed. Yeah. Yeah.

Lesley: And then Andrew, do you wanna talk a little bit about Roths and the strategies around Roths.

Andrew: For Roth? For Roth IRAs? Roth [00:03:00] IRAs have a income contribution limit to into what was, can be called a direct contribution where you. Move money directly into the Roth IRA, whether it be for tax year 2024 or excuse me, 2025 or tax year 2026 that those income levels are determined by looking at what’s called your modified adjusted gross income or one of my favorite acronyms, MAGI.

So what exactly is modified adjusted gross income or MAGI? That is your AGI, your adjusted gross income minus tax credits, adjustments and deductions. Depending upon where your modified adjusted gross income falls, you can make a direct contribution or you have, you can make a partial or you are not eligible.

When the, if your income is too high and you’re not eligible, you’re not outta luck. What happens instead is [00:04:00] you can do what’s called the backdoor Roth IRA contribution and in effect what that is, it’s a non-deductible IRA contribution when you subsequently just convert to Roth the the $7,000 or $7,500, or if you’re over 50, it’s $8,000 or $8,600.

And that way you can, you still have a workaround to do it. It’s an ex, takes an extra two steps and an extra form for your accountant to bill out, but you can still accomplish the goal if your income is too high.

Lesley: And what are the I think the income limit I see for single filers is below, I guess below $153,000, you can do a direct Roth and married below $242,000. You can do direct to a Roth.

Andrew: Yeah exactly. So I would say with most of, when most of our client, our clients fall under those income thresholds, we can most definitely do the direct contribution when you go over that. That’s when we wanna discuss [00:05:00] talking about, does it make sense to just do the the backdoor method because it’s can be a bit of a bear to try and calculate that partial, how much is non-deductible versus how much is actually able to be contributed to the Roth IRA directly.

Lesley: Great. And the, just to tweak out the conversion a little bit. So to do the backdoor, you’re essentially making a contribution to your, to a traditional IRA, and then you’re taking that same dollar amount, like Andrew said, the $7000/$7500/$8000, depending on what year and your age. And then you’re converting that to a Roth, and by converting it, you’re basically taking a distribution then from that traditional IRA. You’ll pay taxes on that distribution, that’s that $7,000 or $7,500 distribution from your traditional IRA and then moving that money to your Roth IRA. Do I have that right guys?

Andrew: Technically it’s not taxed because the given your income was too high for the Roth your income, you would’ve, you’re making what’s a [00:06:00] non-deductible IRA contribution

Lesley: Right

Chris: Because they’re already after tax money is what it called.

Andrew: You put you putting in after tax dollars. Then you’re converting the after tax dollars to Roth. Immediately. Now what’s keep in mind would be if your timelines of when you’re doing this you don’t necessarily want your after tax dollars to grow and percolate in the non-deductible IRA that much you’ll wanna convert it to Roth within a few days or maybe a month or if you wanna leave it, just leave it in like a money market fund. That way it’s not earning that much interest. Because if you were to say, make a $7,000 non-deductible, IRA contribution and you forgot about it for you invested it. Left alone for a year, and it was $8,000 the next year. $7,000 would be non-deductible, but you’d have one and then you’d, that extra thousand dollars that would’ve grown, it’d be a thousand dollars of income that you would be picking up. That’s why if you wanted to make this [00:07:00] work the best, put it in and then a few days do the non-deductible, and then a few days later, subsequently do your Roth conversion.

So if you do generate some interest, it’s pennies on the dollar and not significant dollars.

Lesley: Got it. Understood. So the penalty is really only if the amount has grown. If you’re moving the same amount that you contributed, you’re not really paying taxes on that?

Andrew: No, not really ’cause it’s a non, since it’s a non-deductible, IRA contribution.

Lesley: Yeah. And is it considered a distribution on your tax form?

Andrew: It’s considered a distribution. That’s where the extra filing comes into because clients will need to file the IRS 8606 tax form.

Lesley: For an IRA distribution.

Andrew: Yeah. And if you have two if it would be for an individual, which is be one for a married filing coup, married filing jointly, if there’s both spouses partake in the back door.

Then you would file 2 8606 tax forms for each spouse.[00:08:00]

Lesley: For each spouse. Okay. Got it. Any other nuances on IRAs our clients should know about? Prospective clients? That about it?

Chris: I don’t think so. Not related to tax at least.

Lesley: Yeah. Okay. Thank you everybody for joining us. Chris, do you wanna pop up the disclaimer slide?

We have for regulatory reasons. We wanna make sure that everybody knows we are not tax accountants. We are just giving you suggestions on making sure you get your your IRA contributions in. Thanks for joining us, everybody. We’ll see you next time.

Andrew: Bye-bye.