Don’t Miss The IRA Contribution Deadline

An IRA contribution deadline, whether Roth or traditional, leaves the consumer some leeway to complete tax forms and then decide the best option and amount to contribute. A Roth IRA contribution deadline is identical to a traditional IRA contribution deadline – April 15 of the year following the year for which the worker is filing. Basically, the deadline for the IRA is identical to the federal tax deadline. If, for example, an employee or business owner were filing his taxes in March 2011 for the 2010 tax year and discovered that he could save himself some tax money by making a contribution into an IRA, he could do so before the April 15 tax deadline and still have that tax-free contribution count as a 2010 deduction.

The deadline for investing, while a nice benefit of any IRA, will not help a consumer decide whether she needs a traditional or a Roth IRA. For that decision, she must look at other contrasting features. In general, a Roth IRA allows anyone below the income limits of that year to invest money whose profit is completely tax-free. The money put into the Roth IRA are post-tax dollars, however, which means you won’t get an upfront tax break. What is particularly attractive about an IRA for those W-2 workers who have money left over at the end of the month is that even though they pay into an employer’s 401(k) or other savings program they can still take part in the Roth plan. If they have no employer-provided retirement fund, however, the funds paid into the traditional plan are tax-deductible assuming they meet certain income restrictions.

The most important difference between a Roth and a Traditional Individual Retirement Account is how and when the invested money is taxed. In a traditional, the monies generally go into the plan before the IRS taxes the income, which means that the federal government is considering income of a lesser amount for purposes of levying taxes on it. This saves the taxpayer money up front. In a Roth IRA, the initial investment dollars are taxed but gains are not taxed when the investor starts withdrawing them, presumably when that worker ends his or her career. No matter which type of IRA, the earnings from the investments are tax deferred until withdrawal.

One additional contrast between the Roth and traditional IRA is that the traditional requires the investor to start withdrawing a set minimum amount when she or he turns 70 1/2. The Roth plan has no such requirement. Whether an investor chooses a traditional or Roth, the IRA can be a very smart retirement decision.