When is the deadline for Roth IRA contribution?

A Roth IRA offers an excellent way to build a retirement nest egg. When you fund a Roth IRA, you pay taxes upfront on the contributions, and the money grows tax-free over your working years. If you did not get around to making the maximum contributions, you may have some time to max out your Roth IRA contributions before the deadline.

You can contribute to a Roth IRA for the prior year up to April 15 of the following year. This means that you can contribute to a Roth IRA from January 1 of the tax year until April 15 of the following tax year. In this case, you can only fund the Roth IRA using income earned in the previous tax year.

Roth IRA eligibility

The basic requirement to be eligible to contribute to a Roth IRA is to have an earned income. Some of the eligible compensation include salary, bonuses, commissions, taxed alimony, etc.

However, certain incomes such as rental income, child support, unemployment benefits, social security benefits, and investment earnings from securities do not qualify as earned income. Hence, you cannot contribute these funds to a Roth IRA.

Any person can open and contribute to a Roth IRA, as long as they meet the income limits for Roth IRA. The IRS sets income limits based on your modified adjusted gross income (MAGI) to restrict high income earners from having an undue advantage over other taxpayers.

Roth IRA contributions

Roth contributions are made on an after-tax basis, and you must pay taxes upfront when making contributions to a Roth IRA.

For 2021 and 2022, you can contribute up to $6,000 to a Roth IRA. Taxpayers above age 50 can contribute an extra $1,000 in catch-up contributions, to bring the total contribution to $7,000.

Typically, the annual Roth IRA contribution cannot exceed the earned income. For example, if your earned annual income is $5,000, you can only contribute a maximum of $5,000 to your Roth IRA account. If you earned other incomes that don't qualify as earned income, these funds are considered ineligible compensation, and you cannot contribute these funds to a Roth IRA.

If you do a Roth conversion during the tax year, the conversion does not affect the Roth IRA contribution limit. However, the rollover amount is added to your MAGI, and it may trigger a phase-out of your Roth IRA contributions.

Deadline for Roth IRA contributions

You can make Roth IRA contributions up to the deadline for tax returns. If you have not exhausted the contribution limit by the end of the calendar year, you still have other three-and-half months from January 1 and April 15 to max out your contributions.

You can use the additional three-and-half months to max out your Roth IRA contributions if you did not get around to making contributions in the tax year, or if you received a windfall early in the next year before the tax deadline.

For 2021, the deadline for Roth IRA contributions is April 15, 2022. If the IRS offers an extension for filing taxes, the extension does not apply to your Roth contributions. The extended time only applies to tax returns.

Can you contribute to a Roth IRA after you file your taxes?

If you are an early bird filer, you can still contribute to a Roth IRA even after you have filed your annual tax return. The contributions will count towards the prior year’s contributions. However, you can only contribute income earned in the previous year.

Since you fund an IRA with post-tax dollars, it means you have already paid taxes on the money, and you won’t need to report the contributions on your tax return. Therefore, you won’t be required to file an amended tax return when you contribute to an IRA after you have filed your annual tax return.

Can you use tax refunds to fund a Roth IRA?

If you received a tax refund prior to the due date for tax returns, you can use the refund to top up your Roth IRA contributions for the tax year. This can work when you have several months to contribute to your Roth IRA, and you have not hit the Roth IRA contribution limit.

If you want to use the tax refund to fund your Roth IRA, you must instruct the Roth IRA provider that you want to apply the refund this way. Once you have provided these instructions, the plan provider will apply the refund to your Roth IRA contributions up to the contribution limit.

Roth IRA vs. Traditional IRA

If you have a Roth IRA and a traditional IRA, you can make contributions to both retirement plans between January 1 of the tax year and April 15 of the following year.

However, these two types of IRAs have different tax treatments of contributions and withdrawals. A traditional IRA allows retirement savers to contribute pre-tax money to the retirement account. You get an immediate tax break on contributions, but you will owe taxes when you take a distribution from the account.

However, with a Roth IRA, you pay taxes on contributions, and the money grows tax-free over your working years. You can withdraw your contributions at any time tax-free. You can also withdraw the investment earnings tax-free if you meet the requirements of a qualified distribution.