Fund an IRA twice in one year?

Question

I know that I am limited to placing $5,500 per year into an IRA. But it appears that I can still put money in and have it count for 2016 if I do it before the tax filing deadline, right? So can I open an IRA, max it out before April 15, say that was for 2016, then put in another $5,500 later this year and say that's my 2017 contribution?

The reason I ask is that I've been considering an SD IRA for a few years now, but I know there isn't much I can do with only $5,500 (I know, I should have started a few years ago). But if I can have $16,500 a year from now (but contributing twice this year and then again in 2018) maybe I can buy a small note or something.

Linda Weygant · Answer

Sorry all - yes, Dmitriy is correct.  You can contribute to both, but frequently the IRA becomes non-deductible at specific income points, which is where I was coming from (And what I end up dealing with most often).  Since the OPs stated goal is just to have more funds in a SDIRA, then being able to actually deduct the IRA may be less important.

Messed this answer up.

Dmitriy Fomichenko · Answer

Linda, according to the IRS contributions to an IRA can be made regardless of your contributions to an employer sponsored plan:

https://www.irs.gov/retirement-plans/retirement-pl...

You should double check the source of your info which is incorrect.

Dmitriy Fomichenko · Answer

Brandon, I'm not sure where you got this information but I don't believe it is correct. You can contribute to an IRA for 2016 up until tax filing deadline (April 18th) regardless if you had an IRA open in 2016 or just open it before the deadline:

https://www.irs.gov/retirement-plans/ira-year-end-...

Perhaps you are confusing this with the Solo 401k, which allows certain contributions up until tax filing deadline but the plan must be established before year end.

Dmitriy Fomichenko · Answer

@Paul B.

you should have to amend your tax return for Roth IRA contributions, they don't show on your tax return.

P.S. I'm not a CPA and always recommend that you consult with tax professional on tax related questions.

Paul B. · Answer

Here is a followup question for you IRA and tax experts: I still have time to create my Roth IRA and fund it before April 18 and have it count for 2016. One catch: I have already filed my tax return for 2016. If I manage to pull off getting my IRA set up and funded in the next week, do I have to amend my return to declare this contribution?

Since Roth IRA contributions are made with after-tax funds and are not deductible....it shouldn't impact my return at all. None of the numbers will change. But, is there any paperwork requirement where I simply have to report the contribution, and does this mean I have to re-file my entire return?

Paul B. · Answer

I do have a 401k at work, but my understanding is that my income needs to be below $61,000 as a single filer in order to fully deduct the contribution, but I can still make a contribution.

I am starting to think a Roth IRA makes more sense to me, as long as my income is below $117,000.

George Blower · Answer

@Paul B.

The filing deadline to submit 2016 tax returns is Tuesday, April 18, 2017; therefore, if you have eligible compensation (generally earned income) and meet certain other requirements, you have until this date to both open and fund your IRA for tax year 2016. The 2017 IRA contribution can also be made now but it would be reflected in your 2017 personal tax return.

File Now, Fund LaterIRA owners may file their tax returns and claim Traditional IRA deductions before they contribute to their IRAs as long as they make the appropriate IRA contributions by their deadlines (Revenue Ruling 84-18). This “file now, fund later” concept allows individuals the flexibility to file their tax returns early in the year, claiming either a deductible or nondeductible contribution, while not actually making the IRA contribution until after filing but before their tax return due dates.

Branson Trey Yeakley · Answer

I am sorry to be the bearer of bad news, but you will not be able to do that this year. Although the other two respondents are correct that you can make the contribution for the past year up until the tax deadline, the IRA must have been established in the year you are contributing for. In other words, if you want to contribute to an IRA for 2016, that IRA must have been established before December 31st, 2016. If you already have an IRA, you are good to go.

Another option, if you are planning to leave your job soon (for good or for a different job) is to contribute to your 401(k) and then roll it over to an IRA when you leave your job. The 401(k) would have a limit of $18,000 per year.

Good Luck!

Brian Eastman · Answer

@Paul B.

Your line of thinking is correct.

You can contribute as frequently as you like, but there are annual limits on the total contributions you can make.  The limit for an individual under age 50 is $5,500 as you note.

You can make contributions any time until tax filing date, which is generally April 15th for the prior tax year.

This means that you can make a contribution for any given year between January 1 of that year and April 15th of the next year.

Regardless of when you make your 2016 contribution, you can also make a separate 2017 contribution at any time between now and April 2018.

So, the maximum you could get in between now and December 31st 2017 would be $11,000, so long as you get at least the $5,500 for 2016 contributed to an account before April 15th.

A self-directed IRA may not make sense until you have some additional savings to work with, so just a low cost bank or brokerage IRA might be the right move, and you can setup such an account very quickly.

Fund an IRA twice in one year?

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