With 2013 over, taxpayers may think it's too late to stash earnings in a retirement account and get a tax deduction for the year.
But 2013 contributions for many kinds of retirement accounts can be made up until April 15, or whenever you file your taxes, and some can be made even later by those who get extensions.
"Most people don't realize that you can contribute past the tax year you're filing and benefit from it," says Lisa Greene-Lewis, a certified public accountant with TurboTax and a contributor to the U.S. News My Money blog. "It's a win all around because you're increasing your nest egg and you're decreasing your tax liability."
An individual retirement account is a type of savings account that gives Americans tax advantages for saving money for retirement. You can open an IRA at any type of institution that offers such accounts, including banks, brokerage firms or insurance companies.
Many people contribute to a 401(k) plan through their employers. Taxpayers can contribute up to $17,500 of pretax income for 2013 and can contribute the same amount for 2014. Workers 50 and older can contribute an additional $5,500 each year.
The deadline to make 2013 contributions for a 401(k) or a 403(b) plan through employers was Dec. 31, 2013. However, the beginning of the year is a good time to verify that you are getting the maximum benefit for those accounts for 2014. That includes contributing at least as much as your employer will match.
Even if you contribute to a 401(k) or 403(b) at work, you can still save money in an individual IRA, although it may not net you an additional tax deduction. The IRA contribution limit for both 2013 and 2014 is $5,500, plus an extra $1,000 if you're 50 or older. Your contribution can be to a traditional IRA or a Roth IRA, or split between the two, as long as the total contribution fits into those limits.
More details, including income limits for deductions, are in IRS Publication 590. The rules are complex, so it's worth consulting an account or other expert. Some online tax-filing programs, including TurboTax, have calculations you can use to see how contributing to an IRA will affect your tax liability.
Low- and moderate-income taxpayers can get an additional tax benefit for contributing to an IRA or 401(k) plan through the saver's credit, also known as the retirement savings contribution credit. Workers eligible for the maximum can get a credit of up to 50 percent of the first $2,000 contributed, although the IRS cautions that most workers get less than that. To be eligible for the saver's credit, your adjusted gross income must be less than $29,500 for singles or married persons filing separately, $59,000 for married couples filing jointly and $44,250 for heads of household.
Despite the favorable tax treatment of retirement savings, about 45 percent of American working-age households don't have any retirement assets, according to a research report produced last year by the National Institute on Retirement Security.
"Our findings confirm that the American Dream of retiring comfortably after a lifetime of work will be impossible for many," Nari Rhee, author of the report and NIRS research manager, said in a news release. "Based on 401k-type account and IRA balances alone, some 92 percent of working households do not meet conservative retirement savings targets for their age and income."
Using data from the Federal Reserve's Survey of Consumer Finances, NIRS estimated that if you take into account all U.S. households ages 25 to 64, not just those with retirement accounts, the median retirement account balance is just $3,000. For households nearing retirement, it is just $12,000.
If you want to make sure you're not part of the group that has not saved enough for retirement, you have time to play catch-up for 2013.
Here are three types of retirement vehicles to which you can still make contributions for 2013:
Traditional IRA: The deadline for contributing to a traditional IRA is April 15 or when you file your taxes, whichever comes first. You have until that deadline to open an account if you don't have one already.
Roth IRA: The rules are the same: You can open a Roth IRA account and make 2013 contributions until you file your taxes on April 15.
SEP IRA: This option, which stands for Simplified Employee Pension plan, is for anyone who has income from self-employment or for small businesses. You can set up and contribute 2013 money to a SEP-IRA through whenever your taxes are due, even if you take the maximum extensions, meaning Oct. 15. Taxpayers with self-employment income can contribute up to $51,000 a year, or up to 25 percent of net earnings from self-employment.