Is there anything you can do to save on 2018 taxes before April 15? Yes, you can likely make a tax-deductible Individual Retirement Account (IRA) contribution subject to rules covered in this article. If you do make a contribution, the limit for 2018 is $5,500, plus an extra $1,000 if you are over age 50 for a total of $6,500.

How much will you save in taxes? To calculate, just take your combined federal and state income tax rate, for example 28 percent, multiplied by the maximum contribution of $5,500 or $6,500. That is a savings on taxes of $1,540 or $1,820. Pretty good, right?!

Ahh, but can you make a tax-deductible IRA contribution? If you are NOT covered by a retirement plan at work, you can make the maximum contribution. On the other hand, if you are covered by a retirement plan at work (check your W-2 form to see if the retirement plan checkbox is marked) then it is a matter of what income level you have. If you are single and your income is below $63,000, you can make a full IRA contribution. For married folks, the full IRA contribution is available with a combined income of less than $101,000. A full phaseout of the IRA tax deduction occurs at $73,000 and $121,000 for single and married filers, respectively. To clarify, one member of a married couple may be covered by a retirement plan at work and the other spouse is not. The spouse not covered at work can make the full IRA contribution while the other spouse is subject to the income limits.

Are distributions from regular IRAs subject to tax? Indeed! You did not pay income tax on the IRA money going in, so you have to pay tax when it comes out. If you do so at less than age 59 1/2, you will be subject to a ten percent tax penalty on top of your regular income tax rates, unless your early IRA distribution qualifies for an exception such as purchasing a first home.  

Can you make a non-deductible contribution to an IRA? Yes, but do it in a Roth IRA that allows you to withdraw the money tax-free at retirement. To contribute the maximum to a Roth IRA, your income as a single filer must be below $120,000 with full phaseout of the contribution at $135,000. Married taxpayers can make a full Roth IRA contribution at an income below $189,000, with full phaseout at $199,000. You can contribute to both a regular IRA and a Roth IRA in the same year, but not more than $5,500 or $6,500 for both combined.

Saving towards retirement and saving on taxes at the same time with an IRA is a slam dunk decision if you have the cash available. Make sure to speak with your tax advisor before having your income tax return prepared!