Reduce Your 2019 Tax Bill With an IRA Contribution.

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

contribution.



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