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November 21, 2019

Deadlines for IRAs vs 403(b)s

A client recently asked me if the April cutoff for IRA contributions is the same for 403(b)s. This question prompted me to share the following insights on this little-known difference between 403(b)s and IRAs.

As a refresher, employees of non-profits such as schools and other tax-exempt organizations may benefit from contributing to a 403(b) plan.

How do contribution deadlines for 403(b)s differ from IRAs?

Generally, if you participate in a 403(b) plan your employer will take money out of your paycheck before you receive it and deposit that money into your 403(b) account.

All 403(b) plan contributions must always be processed by December 31st. For tax purposes, the amounts you contribute to your 403(b) plan are reported on the W-2 you receive from your employer. Your employer will close out their payroll for that year and then mail W-2 forms to employees no later than January 31st.

In contrast, the contribution deadline for both traditional and Roth IRAs is the due date of your tax return. This means you get a few extra months to affect the previous year’s tax picture. This extra time to contribute after yearend is a huge benefit. Many folks are motivated to make an IRA contribution as they prepare their income tax return so that they may take advantage of further tax savings.

How do I to take advantage of these deadlines?

Keep 403b open-enrollment periods in mind. Some employers only allow changes to deductions at certain times each year while other employers allow you to make changes at any time. 

You may contribute as much as you earn each paycheck­--some folks take advantage of the last few paychecks of the year to “catch-up” with extra tax-deferred contributions to their 403(b). They then revert to their normal contribution level after the deduction deadline.

If you are not comfortable seeing a smaller paycheck or have already missed the 403(b) deadline, incorporating an IRA contribution may allow for more tax deferral.

Your Turning Pointe Financial Advisor is here to help you take advantage of these deadlines. If you do not currently have an IRA we can review if it is appropriate for you and help you get started.