It’s that time of year – TAX TIME!  That means time is running out to maximize your 2021 IRA contributions if you haven’t already.

Wait, what?  I can still make an IRA contribution for the 2021 tax year?  Yep!  It’s one of those weird and wonderful oddities of our tax system.  Here’s what you need to know:

ROTH IRA’s

In my opinion, just about anyone can benefit from owning a Roth IRA.  Therefore, making Roth IRA contributions is worth considering.  Maxing your Roth contributions annually is one of the first financial goals I recommend to young adults.  

For tax year 2021, the maximum contributions are $6000 under age 50 and $7000 over age 50. 

There are income limitations to this: if you make “too much money,” you cannot contribute to a Roth IRA – at least, not the normal way.  You need to process a “backdoor Roth” contribution.  This is a series of steps that involves making a non-tax-deductible contribution to a traditional IRA, then immediately converting it to a Roth IRA.  Sound too good to be true?  It’s not – yet.  Congress has given this procedure the thumbs up in the past, so right now it’s well known and fairly simple if your advisor knows what she is doing.  But the “backdoor Roth” has been under scrutiny lately.  It’s likely this window of opportunity may be closed at some point in the future, so again – I believe contributing to a Roth IRA is an important item to prioritize for your tax planning.   

TRADITIONAL IRA’s

If you are near the edge of a tax bracket, it’s very smart to consider your pre-tax contributions, to help keep you at a lower tax rate for as long as possible.  One way to accomplish this is to make contributions to a traditional (pretax) IRA.  Pretax accounts such as 401k’s and 403b’s are also great tools for this, BUT, the time to make contributions to those vehicles for tax year 2021 has sailed.  You can only make contributions to those types of employer-sponsored accounts during the calendar year.  So, if you need a last-minute tax deduction now, you could consider a Traditional IRA.

For tax year 2021, the maximum contributions are $6000 under age 50 and $7000 over age 50. 

Looks like the Roth IRA, doesn’t it?  You’re right!  Here’s the catch: IRA contributions are aggregated.  That means these are the maximums you can contribute to ANY type of IRA.  For example, if you are under age 50, you cannot contribute $6000 to each type of IRA.  But you could contribute $4000 to a Roth IRA and $2000 to a Traditional IRA for a total of $6000. 

Again, there are income limitations on the tax deductibility of a Traditional IRA contribution, and they are even lower than the income limits on the Roth IRA, so you may want to see how that affects you here.  If you are over the income threshold for making a tax-deductible contribution, you can still make a non-deductible contribution.  Why would you want to do that?  Because it still helps you to build your retirement savings – still a win for your overall financial plan. 

If you have questions about making last-minute IRA contributions, and how that may benefit you, please ask your tax advisor or your Shadowridge financial advisor.  We’re here to help you make the most of your contributions!


Shadowridge Asset Management, LLC does not offer tax planning or legal services but may provide references to accounting, tax services or legal providers. They may also work with your attorney or independent tax or legal advisor.