Open an IRA by April 17?

Parent Cafe
1

<p>My nephew was over tonight to use our computer to do his tax return on TurboTax. At one point, the program told him that it was not too late to open a retirement account–that if he opened a retirement account by April 17, he would receive a credit on this year’s taxes.</p>

<p>So, several questions: </p>

<ol>
<li><p>How would that work, exactly? I am guessing he should go ahead and submit the return by April 15, and then file an amended return?</p></li>
<li><p>What kind of retirement account should he open?</p></li>
</ol>

2

<p>Call the bank tomorrow, open a CD IRA, claim it on his taxes by the 15th, Little interest, but would improve the tax situation. If opening or adding to a mutual fund, I think the check would just need to be postmarked by the 15th.</p>

3

<p>Opening an IRA is quick and easy. If nephew wants to deduct from 2011 taxes be sure the bank/investment house knows he’s making a 2011 contribution … not a 2012 contribution. </p>

<p>BTW, Federal tax returns can be dated as late as 4/17 this year. You’d need to check about the state return.</p>

4

<p>Def do it if he can. Start saving early and take the tax deduction.</p>

5

<p>No need to amend the return. Simply file it as if the account was opened, then make sure it GETS opened by the 17th.</p>

<p>I did this myself this year. Filed my taxes around March 1 and indicated the IRA deposit but didn’t open the IRA until a couple of weeks later.</p>

6

<p>

If his income level (and hence tax rate) is low, I would recommend a Roth IRA where you pay tax on the amount at the low current rate, but then have the money grow tax free when it’s withdrawn.</p>

7

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</p>

<p>That makes sense investment-wise, but it wouldn’t affect this years’ taxes, would it? (So no need to worry about whether it’s opened April 17 or 18.)</p>

8

<p>The regular IRS out weights Roth IRA by a large margin. Lets suppose the young man’s tax rate is 20%, the tax savings using today’s interest rate it will take 30 years+ to break even. Mutual fund may be better but you are counting the stock market will out perform Bank’s interest rate.</p>

9

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</p>

<p>For $$ tax purposes, no…but a Roth contribution needs to be reported on your tax return. If you report a Roth contribution for 2011 then it DOES need to be made by April 17 and is based on income earned in 2011. If you wait until April 18, then it is based on 2012 income and is reported on your 2012 return.</p>

10

<p>Oops! Is the filing important to show that your income is appropriate for a ROTH? We filed a few weeks back but on one of the bad stock market days last week I added to an existing ROTH. Actually I think I did the same thing last year. Need I be concerned?</p>