Roth individual retirement accounts won't give you a tax break when you contribute, but the money grows tax free and qualified distributions are tax free. Getting the money into your Roth IRA as early as possible allows you to start reaping the benefits of tax-free growth sooner, but it could come back to bite you if you end up being ineligible to contribute for the year.
Start of the Year
The earliest possible date for contributing to your Roth IRA for the year is Jan. 1 of that year. For example, you can't put in your 2013 Roth IRA contribution any earlier than Jan. 1, 2013. If you do, it will be considered a contribution for 2012, which could put you over the annual limit for that year.
Compensation Needed -- Eventually
To contribute to a Roth IRA in any year, you must have compensation equal to or greater than your contribution. Compensation includes income, such as your wages or net self-employment income, plus any taxable alimony you receive. However, it's not necessary that you earned the compensation before making your Roth IRA contribution as long as you have the compensation at some point during the calendar year. For example, you can contribute $5,500 to your Roth IRA on Jan. 1, 2013, even though you haven't earned $5,500. If your compensation falls below $5,500 by the end of the year, you've made an excess contribution.
The Internal Revenue Service also limits your ability to contribute to a Roth IRA based on your modified adjusted gross income for the year. Like your compensation, your modified adjusted gross income is determined at the end of the year, not at the date you contribute. So if you put in money on Jan. 1, you could end up with an excess contribution if you end up making more than the annual limits for your filing status. For example, say you contribute on Jan. 1, anticipating that you'll make $10,000 less than the annual limit. If you win the lottery -- or just receive a significant pay raise at work -- you'll end up over the limit and have to treat that contribution as an excess contribution.
Uncertain About Limits
If you're unsure whether you'll meet the criteria for contributing to a Roth IRA and won't know until the end of the calendar year, don't fret. The IRS allows you to make your contribution for the year as late as your tax filing deadline for the following year. For example, you could make your 2012 contribution as late as Apr. 15, 2013. If you make your contribution between Jan. 1 of the following year and your tax filing deadline, specify which year you want the contribution to count toward.
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