As you are probably aware, April 15, 2014, is the deadline for filing your 2013 federal income tax return. If you are not ready to file by then, you can obtain an automatic six-month extension until October 15 by filing IRS Form 4868 by April 15. Keep in mind that this is a filing extension, not a payment extension. On the form, you will be asked to estimate any tax due and make a payment; a shortfall may generate interest and penalties. Also keep in mind that a filing extension doesn’t extend everything. Certain April 15 deadlines remain in place, no matter when you legitimately file your return.
You can contribute to a traditional IRA for 2013 until April 15, 2014. Anyone who had taxable compensation last year can contribute, as long as they were younger than 70½ on December 31. You can contribute an amount equal to your taxable compensation in 2013 to your IRA, up to $5,500, or up to $6,500 if you were 50 or older at year-end. Both spouses can make maximum IRA contributions, if they file a joint return and their total combined compensation is at least the amount of those contributions.
Just because most workers can contribute to a traditional IRA, it doesn’t follow that they can deduct their IRA contributions. To automatically qualify for a deduction, you can’t be covered by an employer’s retirement plan. If you are covered by an employer’s plan, your ability to take a deduction is determined by your modified adjusted gross income (MAGI). To get a full $5,500 or $6,500 deduction, your 2013 MAGI must be no higher than $59,000 (single filer) or $95,000 (joint return). With slightly higher MAGI, you can deduct part of your IRA contribution. The 2013 phaseout range for deducting traditional IRA contributions is $178,000–$188,000 of MAGI, for a noncovered spouse filing jointly with someone who is covered by an employer’s plan.
The earned income and contribution limits for traditional IRAs apply to Roth IRAs as well, along with an April 15, 2014, deadline for making 2013 contributions. (You can fund both types, but the $5,500 and $6,500 annual ceilings apply to combined contributions to Roth and traditional IRAs.) Both types of IRAs shelter investment earnings inside the account from income tax. From there, these vehicles take different paths. With Roth IRAs, there is no age limit for making annual contributions, as there is for traditional IRAs. Roth IRAs are always funded with aftertax dollars; you never can deduct any contributions. However, all Roth IRA money qualifies for tax-free distributions after age 59½, as long as the distribution is made after the 5-year period beginning with the first tax year you made a contribution to a Roth IRA set up for your benefit. Traditional IRA distributions typically are fully or mainly taxable. What’s more, you can’t contribute to a 2013 Roth IRA if your income last year was too high. The phaseout range runs from MAGI of $112,000- $127,000 for singles and from $178,000-$188,000 for married couples filing joint returns.
Health savings accounts
April 15, 2014, is also the deadline for contributing to a health savings account (HSA) for 2013. To contribute to an HSA, you must have had a qualifying health insurance policy last year; such policies follow federal guidelines for high out-of-pocket costs, before the coverage takes effect, and for caps on out-of-pocket expenses. If you have the right health insurance coverage, you can contribute to an HSA offered by many banks and other financial firms. HAS contributions are tax deductible; those deductible contributions for 2013 can be as much as $6,450, or $7,450 if you were at least age 55. As is the case with IRAs, investment income inside an HSA avoids income tax. HAS distributions are tax-free also, if the money is used for qualified medical expenses. There is no annual “use it or lose it” requirement, so you can let the money build up inside your HSA and eventually take tax-free distributions to pay uninsured medical costs in retirement.