Last week, I posted about IRA mistakes to avoid. One of those mistakes that I did not mention was forgetting to, or not taking full advantage of making an annual contribution. I usually send out a similar post this time every year just as a reminder to my clients who may not have an automatic monthly contribution to their IRA, or make a lump sum contribution each year.
A few weeks ago, I was speaking with a friend, who lamented about their upcoming tax bill. The friend I was speaking to is semi-retired, married, and their spouse works part time. While their overall tax bill is less than $10,000, I suggested looking into reducing that number, even slightly with IRA contributions. I confirmed that neither spouse had made contributions for 2016.
The next step was to coordinate with the friend’s CPA and review the prepared tax return (without IRA contributions), and discuss the possible impacts to the return with IRA contributions.
And while we were not able to eliminate the tax liability, there is an amount that the client could contribute to an IRA without significantly increasing the dollar amount out of pocket. And while it may not seem a significant amount, that contribution, and what it grows to over the next several years would not be part of my friend’s retirement portfolio were it not for his comment about his tax situation.
Regardless, prior to filing your 2016 tax return, check with your advisor to see if you can improve the outcome. And set yourself up for future year’s returns.