Woman using laptop to set up an IRA online
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While 2018 is long gone, taxpayers have a valuable opportunity to save on their income taxes by contributing to a traditional IRA. It’s one of the only things that you can still do to reduce your 2018 taxes, and it’s an easy move to make. The deadline to contribute is the day taxes are due on April 15, 2019.

However, not everyone can take advantage of this window, and there are strict limits on what you can deduct. Still, you could potentially save a decent chunk of change by funding an IRA.

How much an IRA could save you

For tax year 2018, you can contribute up to $5,500 to an IRA, or an additional $1,000 as a catch-up contribution if you’re 50 or older to $6,500. If you meet certain requirements (explained below), you can deduct the full amount from your income, meaning you won’t owe taxes on the amount you put into the account.

If you were in the 25 percent tax bracket, for example, and contributed the maximum $5,500, you would reduce your taxable income by the same amount. This move would reduce your overall tax burden by $1,375 ($5,500 x 25 percent). In effect, the government is paying you money to save.

You can contribute to an IRA even if you have a retirement plan at work, though you may not be able to deduct the full amount of your contribution, depending on your income. If you and your spouse don’t have retirement plans at work, you’ll be able to capture the full tax savings. The IRS provides further details for those not covered by a workplace plan.

If you do have a plan at work, the deductibility of your IRA contribution declines above certain income levels. For example, as a single filer, if your modified adjusted gross income is less than $63,000 for 2018, you can deduct the full amount. Those married filing jointly can have modified gross income up to $101,000 and still receive full deductibility.

But for low-income taxpayers it gets even better. That’s because there’s an additional bonus called the Saver’s Credit. This could reduce your taxes further by up to $2,000. This extra bonus is on top of the first tax savings, so you can get both if you meet the income requirements.

What is the deadline to contribute?

You can contribute to an IRA at any time during the calendar year and up to tax day of the following calendar year. For example, taxpayers can contribute at any time during 2018 and have until the tax deadline (April 15, 2019) to contribute to an IRA for the 2018 tax year. This means that not only do you have to open the account by this date, you must have funded it, too.

But this long contribution window means that as soon as you have your 2018 contributions settled, you can start contributing for 2019, rather than scrambling at the end of tax season in 2020.

And what if you’ve already filed your taxes for 2018? If you haven’t made your contribution yet, you can always re-file your taxes and make a contribution. That’s a little extra work, but it’s worth the hassle for the tax savings.

Are you eligible for an IRA?

You’re eligible for an IRA if you have taxable compensation for a given tax year. However, you may also be eligible for a spousal IRA, if your spouse had taxable income but you didn’t.

As mentioned, the contribution limit for 2018 is $5,500, or $6,500 for those over age 50. But for 2019, the contribution limit rises to $6,000, or $7,000 for those over age 50. However, if your income does not reach these levels, you may only contribute up to your taxable income.

While an IRA can save you on taxes, the IRS imposes limits on your income to take a tax deduction. Even if you exceed these levels, you can still contribute to an IRA, but you won’t get the tax break.

Comparing tax savings: Traditional IRA vs. Roth IRA

If you’re looking for last-minute tax savings this year, you’ll want to make sure that you select the right IRA – the traditional IRA. But you should watch out because there’s another kind – the Roth IRA – that gets you tax savings in the future, rather than today.

The traditional IRA offers you a tax break today in exchange for allowing your investments to grow tax-free until retirement. When you withdraw your money in the future, you’ll pay taxes on the distributions.

In contrast, the Roth IRA gives you a future tax break because you’re saving with after-tax money today. With the Roth IRA, your investments grow tax-free and you won’t pay any taxes on qualified withdrawals later.

While these are the most substantial differences between the two IRAs, there are further differences that you’ll want to understand before making a final choice.

Don’t delay on your IRA

While a tax break for this year is a great incentive to make your IRA contribution, the real value of the IRA is its ability to shield your investments from taxes. Your investments will be able to compound faster that way, and you’ll roll up a larger portfolio more quickly. Bankrate’s IRA calculator can help you determine how large your investments can grow over time.

But to get that kind of growth, you’ll need to take action before this year’s deadline by opening and funding an IRA by April 15. (Here’s how to get going.)

Read Bankrate’s brokerage reviews to help you decide where to open a traditional IRA.

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Correction: This article has been updated to reflect that distributions from traditional IRAs are typically taxed on both contributions and gains.