2020 contribution limits and deadlines

While 2020 is thankfully in the rearview mirror, it’s not too late to make contributions to your traditional/Roth/SEP IRAs or health savings account (HSA) for the 2020 tax year.

Traditional/Roth IRA contribution deadline

You can make a contribution all the way up until the tax return filing deadline of April 15, 2021 but naturally, it’s recommended that you open and fund these accounts well before such time to avoid any last minute headaches.

You can contribute to a traditional IRA regardless of income, but note that there are income limitations to make a deductible (pre-tax) contribution. For purposes of determining whether you can make a deductible contribution, modified adjusted gross income (MAGI) is defined as your adjusted gross income with the following addbacks:

• IRA deduction

• Student loan interest deduction

• Tuition and fees deduction

• Foreign earned income exclusion

• Foreign housing exclusion or deduction

• Exclusion of qualified savings bond interest shown on Form 8815

• Exclusion of employer-provided adoption benefits shown on Form 8839

*While there are income limits to contribute directly to a Roth IRA, you can make what’s known as a backdoor Roth IRA contribution to bypass these limitations!

HSA contribution deadline

In order to be eligible to contribute to a health savings account (HSA), you must be covered by a high deductible health plan subject to the limitations listed in the table below. You are still allowed to make contributions up until the tax filing deadline (April 15, 2021), but be sure to check with your plan sponsor as there might be plan-specific limitations.

SEP IRA contribution deadline

And finally, for those small businesses with a SEP IRA, you are able to make a contribution up until the tax filing deadline (April 15, 2021) in accordance to the following limitations. It’s worth noting that there are specific contribution rules relating to SEP IRAs, which generally allow you to contribute up to 25% of total compensation up to $57,000 in 2020. For those who are self-employed, your contributions are generally limited to 20% of your net income up to the eligible compensation limit of $285,000 in 2020. Net income is defined as the net profit from IRS Schedule C reduced by the deductible self-employment tax. Given the higher level of complexity here, it is recommended that you leverage a tax professional to ensure you are calculating the correct contribution.

Be sure to maximize your annual contribution limits to take advantage of tax-deferral opportunities that can add up over time. Curious if one or many of the accounts mentioned above make sense for you? Reach out to us now!