For a significant number of savers, the goal to fully equip an Individual Retirement Account (IRA) each year is a common financial target. IRAs, which have lower contribution ceilings compared to 401(k) plans, can often make this objective more attainable. However, not everyone succeeds in reaching these limits, often encountering financial disruptions or constraints that prevent full contributions.
Unexpected large expenses such as medical emergencies or pressing home repairs can derail even the most diligent saving plans. Additionally, the general increase in the cost of living, frequently attributed to inflation, can squeeze budgets so tightly that leaving the IRA unmaxed becomes a consequence.
Thankfully, if you were unable to max out your IRA contributions for 2025, the window to complete these payments has not yet closed. Unlike 401(k)s, where the deadline for contributions coincides with the end of the calendar year, IRAs allow supplemental deposits until the following year’s tax filing deadline. This means you may continue to contribute toward your 2025 IRA until April 15 of 2026, potentially bringing your account up to its permitted limit.
Specifically, for the tax year 2025, individuals under the age of 50 can contribute a maximum of $7,000 to their IRAs. For those aged 50 or above, an additional catch-up contribution of $1,000 is allowed, raising the total contribution limit to $8,000. This provision acknowledges the need for older investors to enhance their retirement savings as they approach retirement age.
While the prospect of pumping funds into a previous year’s account may seem daunting—especially when budgeting for current and upcoming financial objectives—the advantages can be meaningful. More substantial contributions to last year's IRA not only increase your retirement nest egg through further investment opportunities but also potentially offer immediate fiscal benefits through tax advantages.
If your retirement account is not a Roth IRA, contributions made can reduce your taxable income, possibly leading to a smaller tax obligation when filing your annual return. This could be particularly beneficial if you realized taxable gains during the year or earned income from supplementary activities such as a side business that lacked tax withholding.
Enhancing your IRA with additional contributions for 2025 may help mitigate tax liabilities incurred from such income by lowering your taxable income bracket. This strategy provides a twofold benefit of strengthening your future financial security while simultaneously managing present-day tax responsibilities.
Moreover, the flexibility in contribution timing extends beyond IRAs to other accounts with tax advantages, such as Health Savings Accounts (HSAs). Like IRAs, HSAs permit contributions until the tax filing deadline in the following year, offering an opportunity for individuals who have yet to maximize their contributions to add funds and enjoy associated tax benefits.
Therefore, if you find yourself with unused contribution room from 2025 in either an IRA or HSA, it is advisable to consider allocating additional resources before the April 15 deadline to capitalize on these opportunities.