Roth IRA Contribution Deadline: When You File Your Taxes

Roth IRA Contribution Deadline

Do you still have time to contribute to that Roth IRA?

This post explains how you can contribute to your Roth IRA up until the date you file your taxes.

First, let me tell you about my retirement savings goals.

I plan on doing a full post looking back on my goals later this month, but for now I’d like to address this one aspect: my retirement contributions.

For the first time ever, I’ve reached the maximum contribution level for my 401K. Woohoo!

I’ll admit though that my enthusiasm has been tempered a bit due to the rate of return those 401K contributions have received due to the downturn in the stock market.

Last year was not a fun year to max out.

Anyway, that leads me to the Roth IRA. It’s the next available tax-advantaged retirement account we have at our disposal for the remainder of this year. It’s been my stretch goal all year to be able to max out contributions to a Roth IRA for Mrs. PT and I.

So, I’ve started my research and I’m looking forward to our contributions purchasing investments at such a discounted level.

As an aside, a big motivator for me to get on the Roth IRA train has been the financial goals posts shared by No Credit Needed. Thanks, NCN.

What is a Roth IRA?

The Roth IRA is named after Senator William Roth (DE) and was developed in the Taxpayer Relief Act of 1997. I didn’t realize it was that new. The Roth is a bit different than the traditional individual retirement account, which has been around since 1974. But the concept is the same: encourage retirement savings.

Within your Roth IRA you can have varied types of investments: CDs, Money Market Accounts, Stocks, Mutual Funds, etc. The Roth IRA, like the traditional IRA, is simply a tax-advantaged house for your investments.

The Roth IRA Contribution Deadline

Before you dive into opening a Roth IRA, you need to know your limits. Unfortunately, there are plenty. Like the income and maximum contribution limits imposed by the government. However, the deadline to contribute is the date you file your taxes, or the last day to file taxes in the U.S..

That leaves me with just a little while to reach this goal.

Is your head spinning yet? There are a million other rules, so be sure and check out this handy IRS Guide on IRAs.

Tax Diversification

One of the great benefits of contributing to a Roth IRA are the tax benefits. You contribute after-tax dollars to a Roth IRA, but you avoid paying any tax on the earnings of the account. And when you withdraw your Roth IRA funds in retirement you don’t have to pay any taxes.

So, in effect, it works just the opposite of a traditional IRA and/or your 401k/403b.

I’m not going to get into the debate of which is better (after-tax accounts vs tax-deferred accounts), but I’ll tell you that my goal is to have both, thereby diversifying my tax situation. I have no idea what my tax rate will be in retirement, but I do know that I’ll have some money taxed now, and some taxed later.

This provides some comfort knowing that my entire retirement portfolio won’t be decimated by taxes up front or when I retire.

I plan to open up a Roth IRA over the next few weeks. I hope to share that process with you and encourage you to do the same.

Have any of you maxed out your Roth IRA contributions yet? Do you plan on contributing by the deadline this year?

Image by miggslives

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Last Edited: March 1, 2012 @ 5:14 pm
About Philip Taylor

Philip Taylor, aka "PT", is a husband and father of two. He created PT Money back in 2007 to share his thoughts on money and to meet others passionate about managing their finances. All the content on this blog is original, and created or edited by PT. Read more about Philip Taylor, and be sure to connect with him on Twitter, Facebook, or view the Philip Taylor+ Google profile.