How To Make A Late IRA Contribution

Looking for a way to lower your tax bill while adding a little extra padding to your nest egg? Then you should consider contributing to your IRA before the April 15 deadline. 

Lower Your 2020 Tax Liability

When you prepare your 2020 tax return, you can add an IRA contribution to find how much it will lower your tax bill. For instance, if you fall in the 24% tax brack and contribute $6,000, you could cut your federal income tax liability by $1,400. You won’t have to pay taxes on your IRA funds until you distribute them.

IRA contributions must be completed before April 15. But as Arielle Minicozzi, a certified financial planner at Modern Money Advisor, told US News My Money, “Making an IRA contribution before the filing deadline in April is a good idea if you haven’t made a contribution yet or haven’t maxed out your contribution and have the available funds.”

Tax deferrals are available on the first $6,000 you contribute. For those 50 and older, it’s $7,000. Spouses can enjoy twice the tax benefits by opening separate accounts in their own names.

Be Mindful Of IRA Income Limits

The IRA tax deduction tapers off for workers with an employer-sponsored 401(k), and whose modified adjusted gross income falls between $65,000 and $75,000. For married couples filing jointly, the limit is $104,000 to $124,000. But if one partner has a 401(k), the limit is between $196,000 and $206,000.

“Be careful that you don’t accidentally over-contribute based on your income level and whether you’ve previously made a contribution for 2020,” Minicozzi warns.

Defer Income Tax On Investment Returns

Any interest earned on traditional IRA funds is tax-exempt until you distribute them. If you fall into a lower tax bracket, you won’t pay as many taxes on your nest egg and decrease your overall tax liability.

Suppose you fall in the 24% tax bracket and pay $1,200 in income taxes on an income of $5,000. If you put that $5,000 grand in an IRA and then drop to the 12% tax bracket after retiring, you will only owe $600 for income taxes when you withdraw your IRA funds.

Enjoy Tax-Exempt Retirement Income With A Roth IRA

With a post-tax Roth IRA, you pay taxes at your current rate for your contributions. This means you don’t have to pay taxes when you distribute the money in retirement.

“If you find yourself in a very low tax bracket in the 2020 tax year, then it is a great opportunity to make a Roth IRA contribution. The money you add to a Roth IRA will be after-tax, but all future growth in the account will be tax-free when used in retirement,” Eric Simonson, a certified financial planner at Abundo Wealth, told US News My Money.

 “If you are in a situation where you qualify for making a traditional IRA contribution and you think that either taxes will be higher in the future or you will have significantly more income in retirement, then it would make sense to make a traditional IRA contribution.”

Single filers with an annual income under $139,000 or joint filers earning less than $206,000 are allowed to contribute to a Roth IRA for 2020. Eligibility typically tapers off for individuals making over $124,000 and spouses earning more than $196,000.

Use Your Tax Refund To Make IRA Contributions

With Form 8888, you can directly deposit either a portion or your entire refund into your IRA account. You could write this deposit off on your taxes if you contributed before the April 15 deadline.

Be Clear About The Year Of Your Contributions

Be mindful that you state which tax year you want your contribution to count toward since IRA providers will apply it to the calendar year you contributed unless you specify. 

“If you try to make a 2020 contribution today, make sure that the contribution is coded as a 2020, and not a 2021 contribution,” Mike Hennessy, the founder and CEO of Harbor Crest Wealth Advisors, explained. “Make sure your custodian can, knows how to and will confirm your contribution is indeed a 2020 contribution.”

Prevent The Temptation To Spend

It’s harder to tap the funds in your IRA before your retirement. If you distribute the money before the age of retirement (59 ½), you must pay a 10% penalty for early withdrawals. Not only that, but you’ll also be charged income taxes. If you fall in the 24% tax bracket, you could be hit with $340 in taxes. 

But there are a few exceptions to this rule, such as college expenses, buying a new home, having a baby, high medical bills, and more.

Claim The Saver’s Credit

If you contribute to an IRA and your 2020 adjusted gross income did not exceed $32,500 as a single filer, $48,750 as the head of household, or $65,000 as a joint filer, you could qualify for the saver’s credit. 

This benefit is 10% to 50% of your IRA savings, up to $2,000 for single filers and $4,000 for spouses. The lower your annual income, the more credit you will receive. You can claim the saver’s credit on top of your regular tax deductions when you contribute to a retirement vehicle.


  • Brandon, Emily. “How to Make a Last-Minute IRA Contribution.” U.S. News & World Report, U.S. News & World Report, 25 Jan. 2021,
Ian Schindler