If you have not already made your Roth or Traditional IRA contribution for 2012, you have a narrow window to do so. The longer the money has to grow, the better off you should be. Remember, the deadline for a 2012 contribution is April 15, 2013.
You should discuss your options with your financial adviser or tax consultant before making a Traditional IRA contribution. If you contribute to your IRA before April 15, 2013, you will need to notify the sponsor which tax year the contribution is for, as the sponsor can assume and report to the IRS, that the contribution is for the current year.
To make a Roth or a Traditional IRA contribution, you must have earned income. The following lists the income limits and contribution limits for a Roth and a Traditional IRA:
Married Filing Jointly
If your combined adjusted gross income (AGI) is more than $183,000, you cannot contribute to a Roth. Your contributions should be made to a Traditional IRA.
If your AGI is between $173,000 and $183,000, the amount you are allowed to contribute to a Roth phases out the closer your income is to $183,000. If your income is in this range, discuss with your tax adviser the amount you may contribute to a Roth IRA. The remainder should be contributed to a Traditional IRA.
If your AGI is below $173,000, you are allowed to make the full contribution to a Roth.
If your AGI is more than $125,000, you cannot contribute to a Roth. You should contribute to a Traditional IRA.
If your AGI is between $110,000 and $125,000, the amount you are allowed to contribute to a Roth phases out the closer your income is to $125,000. You should consult with your tax adviser for the amount you are allowed to contribute to a Roth. The remainder should be contributed to a Traditional IRA.
If your AGI is below $110,000, you are eligible to make a full contribution to a Roth IRA.
2012 IRA Contribution Limits
For 2012, the maximum you can contribute to all of your traditional and Roth IRAs is the smaller of: $5,000 ($6,000 if you are 50 or older), or your taxable compensation for the year. Additionally, you may consider getting a head start on your 2013 IRA contribution by having your tax refund directly deposited into your IRA account.
William G. Lako, Jr., CFP®, is a principal at Henssler Financial, and a co-host on Atlanta's longest running, most respected financial talk radio show "Money Talks" airing Sundays at 10 a.m. on Talk 920 AM, WGKA.