IRA Contribution Window Closing Soon

Planning on making a contribution to an IRA for the 2013 tax year? Better act fast because the IRA contribution window will be closing soon. The April 15 deadline is fast approaching.

The contribution limit for 2013 and 2014 is $5,500. Those over age 50 get to save an extra $1,000 per year before they bail out of the workplace.

Deciding Between a Roth and a Traditional IRA

The difference between a Roth IRA and a traditional IRA is the way they are taxed. For those who qualify, a traditional IRA lets investors take a deduction in the year the contribution is made. So an investor with qualifying income who makes a $5,500 contribution for 2013 will be able to take that deduction when she files her 2013 taxes.

A Roth IRA, on the other hand, requires that money go in after taxes have been paid. Earnings can be withdrawn tax-free at age 59 1/2 as long as the account has been open for five years, but contributions can be taken out at any time, tax-free and penalty-free.

In some years, for some investors, one type of IRA may seem more appealing than the other.

“Part of that is a little bit of looking into your crystal ball. At Bankrate.com, you have a traditional vs. Roth comparison tool. Make some assumptions using the tool and run a few different scenarios. What they get shows them: This is what you end up with after putting in your goals and objectives,” says James Barnett, CPA, Certified Financial Planner and estate and trust manager at Kaufman Rossin in Boca Raton, Fla.

The rules for determining if you qualify for the full deduction from a contribution to a traditional IRA can be complex. If you are not covered by a workplace plan, then you can take the full deduction of your contribution amount regardless of your income. Income phaseouts apply if you or your spouse has access to a workplace plan, and these phaseouts may steer you in one direction or the other.

Continue reading this IRA Contribution article on Bankrate.com.