The tax deadline for the 2024 tax year is approaching. Now is the time to review your IRA contributions and explore strategies to maximize your savings. Contributing the maximum allowable amount can help you enhance your retirement savings and potentially reduce your current tax liability. This article will guide you through key strategies on how to maximize your IRA contributions before the tax deadline. Keep in mind this information is for educational purposes only. Always consult with a tax professional for guidance on filing your taxes, and consult a financial advisor for detailed investment advice.

Three IRA Contribution Tips

To maximize your IRA contributions, it's essential to understand the key factors that impact your ability to contribute. These include contribution limits, deadlines, and eligibility requirements.

1 | Understand Your Contribution Limits for the Tax Year

Contributing to your IRA before the tax deadline allows you to take full advantage of the contribution limits. For 2024, the contribution limit for both Traditional and Roth IRAs is $7,000. If you're 50 or older, you can take advantage of "catch-up contributions" of $1,000, increasing your total limit to $8,000. Note that these are the contribution limits for the 2024 tax year and limits can change in future years.

Note: Consult a financial advisor to learn the differences between Traditional and Roth IRAs.

2 | Meet the Tax Deadline for IRA Contributions

Your IRA contributions are considered for the previous tax year as long as you meet the tax deadline. The deadline for contributing to your IRA for the 2024 tax year is April 15th, 2025. In years when April 15th falls on a weekend or holiday, the deadline is typically the following business day. 

Don't miss this deadline! Contributions made after April 15th will not be considered part of the 2024 tax year.

3 | Check Your Eligibility for Contributions

Eligibility for IRA contributions varies depending on your income and filing status.

  • Roth IRA Contributions. For 2024, single filers with a Modified Adjusted Gross Income (MAGI) below $146,000 and married couples filing jointly with a MAGI below $230,000 can generally contribute the full amount to a Roth IRA. Higher income earners may have their limits reduced or be ineligible for Roth IRA contributions.

  • Traditional IRA Deductibility.  The deductibility of Traditional IRA contributions may be limited or prohibited for higher-income earners. Your eligibility for deductibility depends on your income, filing status, and whether you or your spouse are covered by an employer-sponsored retirement plan.

Note: Consult a financial advisor with specific questions regarding limits and deductibility.  

Four Strategies to Maximize IRA Contributions

The following five strategies can help you make the most of your IRA contributions before the tax deadline.

1 | Leverage Unexpected Income for Year-End Contributions

Unexpected income, such as end-of-year bonuses, gifts, or contest winnings, can provide an excellent last-minute opportunity to boost your IRA contributions before the tax deadline. Direct a portion—or all—of this money towards your IRA to increase your contribution total for the year.

2 | Consider a Lump-Sum Contribution at the Beginning of the Year

For those with the financial means, make a lump-sum contribution to your IRA early in the year, ideally in January. This strategy allows your contributions to benefit from extended growth within the tax-deferred environment of your IRA throughout the year.

Note: This approach requires careful planning and ensuring you have sufficient liquidity. Avoid depleting your emergency fund or incurring unnecessary debt to make a lump-sum contribution.

3 | Make Regular Contributions Throughout the Year

Add to your IRA throughout the year, rather than waiting for a large lump sum contribution near the tax deadline. Contributing to your IRA on a consistent basis, such as monthly or quarterly, can help you stay on track and reach your annual contribution limit before the tax deadline.

4 | Automate Contributions for Consistent Savings 

Automating your IRA contributions can simplify the process and help you maintain savings throughout the year. Schedule monthly, or even bi-weekly, automatic transfers from your checking or savings account to your IRA. This way you can set it, forget it and you'll be well on your way to reaching your annual contribution limits before the tax deadline.

Be sure to consult with a qualified financial advisor to understand the potential benefits, limitations, and tax implications of any potential strategy before implementing it.Before you begin contributing to your IRA, carefully review your tax situation and monthly budget to determine the most advantageous strategy for your specific needs and goals. Remember, you have until the tax filing deadline for the relevant tax year to make contributions that will be applied towards that year's IRA contribution limit. Contact HFCU today to explore your IRA options, schedule a consultation with a financial advisor, and start planning for a secure retirement.