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Making Prior Year IRA Contributions

Individual retirement arrangements, or IRAs, provide tax incentives for saving for retirement. If you can afford it, I strongly encourage everybody to contribute at least a little bit to a Roth IRA every year, even if you have a 401(k) or other retirement plan at work. And among the many benefits of IRAs is the fact that you can make prior year IRA contributions up until April 15 each year.

What are prior year IRA contributions?

Ok, so every year you file your tax returns on or around April 15. As you prepare your tax return, you collect deductible expenses (like student loan or mortgage interest) that you paid last year, before December 31. If you determine in April that you didn’t pay enough tax last year and will owe the IRS, you can’t write a check to charity and count it for last year to reduce your taxable income – it’s too late.

Fortunately, however, you can make prior year IRA contributions up until the tax filing date. So if you meant to start an IRA last year but forgot, you can still open an account, fund it, and count the contributions for the prior tax year.

Why would you want make prior year IRA contributions?

Maybe you forgot to open an IRA last year, or you only contributed a little bit and realize you have more money to save up until the annual limit.

Perhaps you discovered that you’re going to owe the IRS some money and you want to reduce your tax bill. If you haven’t already maxed out your IRA for last year, you can make traditional IRA contributions that are tax deductible. (For example,  if you contribute $5,000 to a traditional IRA before April 15 you can reduce last year’s taxable income by $5,000 and reduce the amount you owe by some percentage).

Note that this only works with traditional IRAs. You cannot deduct contributions to a Roth IRA because the money can be withdrawn tax-free during retirement. In general, I recommend young people open Roth IRAs instead of traditional IRAs because, in most cases, your tax rate will be higher in 30 or 40 years than it is now.  That said, reducing an unexpected tax bill would be a good reason to put some cash into a traditional IRA.

Need to open an IRA?

Read about the best places to open an IRA or check out our recommended stock brokers – all offer IRA accounts in which you can invest in a variety of stocks, bonds, and mutual funds.

Get detailed information about individual retirement arrangements from the IRS website.

Published or updated on April 5, 2013

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About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.


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  1. KP says:

    Another benefit to the Roth IRA is the tax credit. I realize that most people are exempt from this credit, but those of us starting out in the “real world”, could use the credits. Essentially, if your income is under $28k, you are able to receive at least a 10% tax credit. (Source: http://www.investopedia.com/articles/retirement/05/022105.asp). I think that this is a great way for recent grads to get a nice tax credit back since most would only have ~7 months of income (after graduating in May). The limit is 50% tax credit if you are filing as single and your income is less than $17.5k.

  2. KB says:


    I’ve been contributing the max amount to my Roth account for ~6 yrs. I work at a Univ that has it’s own retirement plan and they also offer 503b plans as a supplement. Can I open a 503B if I have a Roth? Should I? Even though the contribution limit is less, would just a Roth and my univ retirement account be enough?


    • David E. Weliver says:

      Hi KB, Yes, you can contribute to both your Roth IRA and 503b plan. I’d probably do the same thing as you and start with the Roth and, then, if you want to/need to save more, put some in the 503b. Whether or not you need to depends on how much you’re trying to save. If you google “retirement calculator” you’ll find some free tools that you can use to estimate whether you’re saving enough to retire with a certain income. Of course, lots of variables can effect that between now and then, but you’ll get an idea.

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