Updated: Sep 11
There's still time to reduce your 2019 tax bill. You can make a tax-deferred individual retirement account contribution that can be applied to your 2019 tax return any time before April 15, 2020. Here's how to take advantage of this tax break for IRA participants.
Max out your IRA. You can defer paying income tax on up to $6,000 that you contribute to an IRA. Workers age 50 and older can make catch-up contributions worth up to an additional $1,000 for a maximum possible contribution of $7,000.
You can plug in an IRA contribution as you are preparing your tax return to see exactly how much your tax bill will decline if you move some money into an IRA. "You can run the numbers there in real time as you are getting your taxes done and see what a difference it will make," says Alison Flores, principal tax research analyst at The Tax Institute at H&R Block. "That may be enough to convince you to go ahead and make that contribution."
Watch out for eligibility restrictions. You can't make contributions to a traditional IRA after age 70 1/2. You also need earned income to be eligible to contribute to an IRA. "It can't be more than your earnings, so if you are 60 years old and you just have a part-time job and you made $4,000 for the year, that would be your limit," says Barbara Weltman, author of "J.K. Lasser's 1001 Deductions and Tax Breaks 2020: Your Complete Guide to Everything Deductible".
Additionally you may be able to take a tax credit for making eligible contributions to your IRA or employer-sponsored retirement plan.2020 Saver's Credit.
Retirement savings eligible for the credit
The Saver’s Credit can be taken for your contributions to a traditional or Roth IRA; your 401(k), SIMPLE IRA, SARSEP, 403(b), 501(c)(18) or governmental 457(b) plan; and your voluntary after-tax employee contributions to your qualified retirement and 403(b) plans.
Rollover contributions (money that you moved from another retirement plan or IRA) aren’t eligible for the Saver’s Credit. Also, your eligible contributions may be reduced by any recent distributions you received from a retirement plan or IRA.
Example: Jill, who works at a retail store, is married and earned $38,500 in 2019. Jill’s husband was unemployed in 2019 and didn’t have any earnings. Jill contributed $1,000 to her IRA in 2019. After deducting her IRA contribution, the adjusted gross income shown on her joint return is $37,500. Jill may claim a 50% credit, $500, for her $1,000 IRA
Finding the Right Financial Advisor
If you’re not sure which type of advisor suits you, take a look at the highlights:
These online services pick and maintain an investment portfolio for you using computers, which lowers their overhead. Some offer access to human advisors for when you have questions.
Low cost, easy entry: Fees start as low as 0.25% of your balance and most charge 0.50% or less. Many have no or low account minimums, so you can start investing with a small amount of money. Good when: You want to get started working on financial goals like retirement but don’t want to pay a lot.
HUMAN FINANCIAL ADVISORS
Many different types of specialists focus on helping you reach financial goals. Finding a fee-only financial planner gives you a good combination of specialized training and no conflicts of interest.
Higher cost, minimums: The median financial advisor fee is about 1% of the assets managed for you, although some charge by the hour or have a set rate per service. Some require a minimum balance, such as $250,000 in assets to manage. Good when: You want specialized services like estate planning; you’re about to make a big life change, like retiring or getting married; your situation is complex.