Author Topic: Contributing to Traditional IRA after filing taxes?  (Read 8653 times)

jasminegeekface

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Contributing to Traditional IRA after filing taxes?
« on: February 25, 2015, 09:24:54 AM »
Hello all,

I'm a fairly new 21 year old Mustachian, and I filed my own tax return for the first time this year, so please bear with me if I sound a little clueless.

I already filed my federal and NY state taxes and received both refunds last week. At the time I didn't have the good sense to contribute to an IRA to reduce my taxable income, but I've realized I probably should have, especially because I was only working from September onwards and my total taxable income would have dropped to less than $8000 last year if I had contributed the $5500 maximum.

My question is, if I want to open a traditional IRA now and contribute the maximum for 2014, am I still able to do that? Do I just file an amended return? Is there anything else I need to do besides that?

Thank you in advance!

rubybeth

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Re: Contributing to Traditional IRA after filing taxes?
« Reply #1 on: February 25, 2015, 09:41:46 AM »
Yes, you are exactly correct. You can contribute to an IRA up to April 15, and you can do an amended return to reflect the change. You'll likely get an even bigger refund. :)

Edited to add: just so you know, you don't have to put the money into the IRA until April. You can just put on your amended return how much you will be putting into the IRA, and actually do the IRA transfer later.
« Last Edit: February 25, 2015, 09:43:19 AM by rubybeth »

KCM5

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Re: Contributing to Traditional IRA after filing taxes?
« Reply #2 on: February 25, 2015, 10:23:57 AM »
Also, I don't know your income, but if you qualify and didn't already use it on your return, don't forget about the savers credit.

jasminegeekface

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Re: Contributing to Traditional IRA after filing taxes?
« Reply #3 on: February 25, 2015, 10:31:56 AM »
Okay, great, thanks so much! :)

And KCM5, I think I don't qualify for the savers credit because I was a full time student from January through May, and my dad will also claim me as a dependent for last year.

seattlecyclone

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Re: Contributing to Traditional IRA after filing taxes?
« Reply #4 on: February 25, 2015, 10:54:36 AM »
Your income is already low enough that a Roth IRA may make more sense in your situation. It's up to you though.

jasminegeekface

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Re: Contributing to Traditional IRA after filing taxes?
« Reply #5 on: February 25, 2015, 10:57:52 AM »
seattlecyclone, does the Roth still make more sense if I ran the numbers and the traditional IRA would get me a bigger refund? Also, would my expected income for 2015 have any influence on which would be a better choice for my 2014 contributions?

seattlecyclone

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Re: Contributing to Traditional IRA after filing taxes?
« Reply #6 on: February 25, 2015, 11:06:26 AM »
The traditional contributions would of course get you a bigger refund this year, since a traditional IRA reduces your taxable income and a Roth IRA doesn't. The question is whether you're better off paying tax on this money now at your current low rate or during retirement at whatever your tax rate is then.

Based on the numbers you shared, it sounds that you're just barely into the 15% tax bracket. By making a traditional contribution you would be getting somewhere between 10-15% of your contribution back as a tax refund. If you think it's likely that your tax rate will be at least 15% when you retire, a Roth contribution may be better.

jasminegeekface

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Re: Contributing to Traditional IRA after filing taxes?
« Reply #7 on: February 25, 2015, 12:32:10 PM »
The traditional contributions would of course get you a bigger refund this year, since a traditional IRA reduces your taxable income and a Roth IRA doesn't. The question is whether you're better off paying tax on this money now at your current low rate or during retirement at whatever your tax rate is then.

Based on the numbers you shared, it sounds that you're just barely into the 15% tax bracket. By making a traditional contribution you would be getting somewhere between 10-15% of your contribution back as a tax refund. If you think it's likely that your tax rate will be at least 15% when you retire, a Roth contribution may be better.


I'm expecting it to be unlikely that my tax rate will be too different in retirement from what it was last year, and I am definitely expecting it to be lower than my tax rate this year, when I'm expecting my income to be close to $40000 after maxing out my 401k. I haven't entirely decided what I'll be doing for this year, but my guess is I'll be going the traditional IRA route, so I guess I'm a little unsure if it's worth it to open a Roth IRA account now just for 2014 contributions when I don't think I'll be contributing to it again for the foreseeable future.

Although to be completely honest I'm still brushing up on my understanding of all the differences between the two.