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By Christine Benz | 01-22-2016 06:00 AM

IRA Tips for 2016

Know what you're eligible for, take advantage of workarounds and recharacterization, and--above all--don't wait until the last minute, says retirement expert Ed Slott.

Note: This video is part of Morningstar's February 2016 Tax Relief Week special report.

Christine Benz: Hi, I'm Christine Benz for Morningstar.com. April 18 is your tax-filing deadline for the 2015 tax year, and it's also your IRA contribution deadline for 2015. Joining me to share some tips on those contributions is retirement expert Ed Slott.

Ed, thank you so much for being here.

Ed Slott: Great to be here in Chicago.

Benz: Thank you for being here in studio. Let's talk about April 18. It's the tax-filing deadline this year, and it's also your deadline for making an IRA contribution. One key piece of advice you have on that front is don't wait till the very last minute.

Slott: It probably doesn't matter that I tell people that. People are going to do it anyway. They like the rush of being at the post office or at the bank at the last minute. But the IRA contribution is different from filing your taxes. [April 18 is] the last day to get an IRA or Roth IRA contribution for the previous year--for 2015--and there is no extension. So, even if your regular return is on extension, there is no extension for making a 2015 contribution--or a prior-year contribution--past the normal April 15, which is now April 18 this year because of a holiday. But don't wait till then. Try to do it at least a week before; you can get the same rush.

Benz: So, it's a little bit confusing for people attempting to sort through the various income limitations that apply to a traditional deductible IRA and Roth IRA. But you say it's really important that people make sure that they are eligible to make the type of contribution that they are trying make.

Slott: Yes, things change. You have to know the eligibility rules and, unfortunately, the tax code made it more complicated. For the most part, IRAs and Roth IRAs fall under IRAs, but the rules for eligibility are almost opposite. For example, with IRAs, there are no income limits. With Roth IRAs--and we're talking contributions only--there are income limits. They are very high, but there are income limits. For Roth IRAs, there are no age limits, but for traditional IRAs, you can't fund one for the year you turn 70 1/2 or for later years.

So, you have to make sure you're eligible. And of course, to do either, you have to have earned income. People in retirement think, "Maybe I can just keep contributing." No, you have to have earned income. That's W-2 wages, self-employment income. The only exception to having earned income is for something known as spousal IRAs. If you have a spouse who's not working, who doesn't have wages or self-employment, that spouse can use the working spouse's income to qualify; but the spouse still has to qualify on their own. For example, if one spouse is working and that spouse is in his or her 60s but the other spouse who is not working is 75, the nonworking spouse can use that spouse's wages, but she doesn't qualify anyway because she is over 70 1/2. But she could qualify for a Roth, where there is no age limitation.

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