Until scientists tackle time travel, there’s this: For a couple more weeks, you can go back to last year and make an individual retirement account contribution toward the 2016 annual limit.
That’s thanks to a generous deadline from the IRS that allows contributions to an IRA for each year until the tax-filing deadline the next year. For 2016, that’s April 18, 2017, and you can put in up to $5,500, or $6,500 if you’re 50 or older.
Open an IRA or fund an existing one
At the risk of sounding obvious, taking advantage of this extra time requires actually having an IRA. If you do, it’s mostly a matter of funding it before the deadline and letting the account provider know that the contribution is for 2016. If you don’t have an IRA, you still have time to open one; the process is quick and painless. Here’s a step-by-step guide.
As an IRA first-timer, you’ll need to decide whether you want to go for the Roth IRA or the traditional version. A Roth doesn’t have an immediate tax benefit, but qualified distributions in retirement are tax-free. With a traditional, you’ll get a tax deduction on contributions but pay taxes when you take distributions. The Roth IRA has eligibility limits based on income, which could influence your decision, though there are also tighter restrictions on traditional IRA deductions for people who exceed certain income limits and are covered by an employer-sponsored retirement plan.
Borrow from this year to pay last year
If you already have an IRA and you’ve made contributions to it this year, they likely went into the 2017 pot unless you requested otherwise. All money for retirement is good money, but ideally, you want to fund last year while you still can — that way, you can also contribute up to the limit for 2017. Hitting the limit might sound like a far-off dream, but you may as well leave the door open.
Many IRA providers will give you a do-over, which can be as simple as calling and asking that they count the contributions you’ve made so far this year toward 2016 instead. Be sure you know how much you already contributed for last year — if anything — so you don’t go over the annual limit.
Use your tax refund
Sudden windfalls aren’t as common as any of us would like, but tax refunds are. Almost 83% of returns resulted in refunds last year, according to IRS statistics. If you’ve already filed and came out on the right side of Uncle Sam, an IRA is a good place to put those extra dollars.
You can send your refund directly to an IRA, which will keep that money from taking an accidental detour through Amazon or getting swallowed up by day-to-day living expenses. The IRS allows you to direct-deposit your tax refund when you file, splitting it among up to three accounts. You’ll need to call your IRA provider and specify you want this classified as a 2016 contribution.
If you’re using a traditional IRA and you want the tax deduction for your contribution — answer: you do — you can file an amended return claiming that deduction. It’s a mild pain, but the savings are worth it. If you haven’t yet filed, you can take the deduction for the amount you plan to contribute, as long as you actually contribute that amount by the April 18 deadline, says Lisa Greene-Lewis, a certified public accountant and tax expert at TurboTax.
You may also be able to claim the saver’s credit. “You may be eligible for a credit of up to $1,000, or $2,000 if married filing jointly,” Greene-Lewis says. “This is the only place the IRS allows you to double dip.”
The credit is based on income and the amount you contribute to a retirement plan: 50%, 20% or 10% of contributions of up to $2,000 ($4,000 for those married filing jointly.) The IRS has a chart to help you calculate what your credit would be worth.
Finally, avoid this last-minute scramble for 2017 contributions by adjusting your withholding so you don’t get a tax refund, which will give you a little bit more cash in each paycheck. That little bit more can turn into a lot more if you regularly use it to fund an IRA.