Start Contributing to a Roth IRA If You Aren’t Already

You may want to start contributing to a Roth IRA if you aren’t already — it make sense following the enactment of the Tax Cuts and Jobs Act.

Start contributing to a Roth IRA before it's too late.The Roth IRA primarily appeals to the young — and to an extent directly proportionate to the amount of time you have until retirement.

The other rationale for contributing to a Roth IRA should have wider relevance under the new tax law: I you anticipate having a higher tax burden in retirement than you do presently.

Start Contributing to a Roth IRA

Most people now fall into that category because the tax cuts that just went into effect begin to sunset in 2025, at which points higher tax rates take effect.

That means that from now through 2024, you can save money on taxes by maxing out the allowed contributions to a Roth IRA — $5,500 annually for those under 50 and $6,500 for those 50 and up.

However, eligibility to directly contribute to the Roth IRA starts to phase out among higher income brackets, making ineligible for direct contribution those who file as single earning $133,000 a year or more, married filing jointly with $196,000 annual income and married filing separately with at least $10,000 in annual income.

Conversions and Recharacterizations

Those who are ineligible to contribute directly can still make what some call a “back-door” contribution to a Roth, where you first put the money into another type of IRA and then you convert it to a Roth. These conversions are limited to the same amounts — $5,500 for people under age 50 and $6,500 for those 50 and older.

Conversions from other types of IRAs to Roth gain appeal whenever stocks in value following your original contribution — and with the markets becoming more turbulent since 2018 began, the prospect of converting other types of IRA contributions to Roth starts to look appetizing.

If you convert another type of IRA contribution to a Roth, you have until mid-October of 2018 to change your mind and recharacterize it as the original type of contribution; this is the last year you have the ability to make this type of change.

Deadline Is October

The mid-October 2018 deadline also applies to any other type of IRA contribution you wish to reverse — something you might want to do if you see a prolonged slide in stock prices.

The ability to make this type of recharacterization also ends this year — assuming the Tax and Jobs Act doesn’t undergo additional revisions.

Meanwhile, you still have until the day that tax returns are due this year, April 17, to complete contributions to any type of retirement plan.

Now don’t just take our word for it; check out what the IRS has to say on the subject of Roth IRA contributions:

Readers, what issues have you found confusing or challenging this tax season?