Ethan R. Okura
Hawai‘i Herald Columnist

It’s that time of the year again. No, I’m not talking about Valentine’s Day. Not even President’s Day. I’m talking about taxes!

You have until Monday, April 15, to file your federal individual income tax return. But if you’re like many people, you will probably be filing for an extension, which will give you until Oct. 15 to submit it. However, usually about now, people begin thinking about their taxes and I start getting questions about how to save on paying taxes. Unfortunately, there isn’t much that can be done now to affect your 2018 income tax return.

In this month’s column, I’d like to discuss one thing you can do even after the close of 2018 that might help you lower your tax bill and, as a bonus, get you to save more for retirement.


Contributions: If you haven’t already done so, you may contribute up to $5,500 of your 2018 earned income to a traditional IRA, or $6,500 if you are age 50 or older. You have until your filing deadline (April 15, 2019) to make this contribution for your 2018 income tax return.

However, if you or your spouse is covered by a retirement plan at work (such as a 401k, 403b, SEP, SIMPLE or profit sharing plan), then you might not be able to take a deduction for all or part of the contribution to your IRA, depending on your income.

You are not allowed to contribute to a traditional IRA for the year in which you will or have reached age 70½. In other words, if you were born on or before June 30, you cannot contribute to a traditional IRA in the year that you turn 70. If you were born on or after July 1, then you can still make a contribution for that year. You will also have to start withdrawing required minimum distributions from your traditional IRA in the year you turn 70½.

Income Limits for Non-Deductibility. In a situation in which you or your spouse is covered by a retirement plan at work and filing jointly, you can still deduct the full amount of your IRA contribution if your modified adjusted gross income, or AGI, is less than $101,000. If your modified AGI is greater than $121,000, you may not deduct any of it. Between those two figures, you may take a partial deduction that phases out as you reach $121,000 in AGI.

For single filers, those figures are $63,000 and $73,000, respectively. If you’re married and filing separately, you cannot take a deduction at all if you have more than $10,000 AGI, and you only get a partial deduction if your AGI is less than $10,000.


If you cannot take a deduction now, or if you prefer that your earnings not only grow tax-free but also come out tax-free, then you may be able to contribute to a Roth IRA instead of a traditional IRA.

Contributions. You may contribute the same amount to a Roth IRA out of your 2018 earned income as you could to a traditional IRA (up to a maximum of $5,500, or $6,500 for those age 50 and older). Alternatively, you can contribute a combination of some amount to each IRA as long as the total contributions between the two does not exceed the maximum annual contribution limit.

Income Limits. Although you do not get to take a deduction up-front for the contribution to a Roth IRA, the total amount, including growth, can all be distributed to you tax-free during retirement. If your AGI is above the limit allowed to take a deduction for a traditional IRA contribution, you might want to consider contributing to a Roth IRA instead, as long as your AGI is within the limits allowed for Roth contributions.

For married couples filing jointly, you may contribute up to the maximum amount if your AGI is less than $189,000. Between $189,000 and $199,000 of AGI, you may make a partial con tribution that phases out to zero at $199,000 of AGI.

For single filers, the figures are $120,000 to $135,000. Those who are married and filing separately may only make a partial contribution that phases out to zero at $10,000 AGI.

Expert’s Tip. Even if you have too much income to qualify to contribute to a Roth IRA, you can still make a non-deductible contribution to a traditional IRA. Then you can convert the assets newly contributed to the traditional IRA into a Roth IRA and there are no income restrictions on a conversion. With a conversion, you normally have to claim in your income the amounts being converted from the traditional IRA to the Roth IRA. However, if you did not take a deduction for the contribution to the traditional IRA in the first place, then you don’t have to pay income tax on the contributed principal when subsequently converting it to a Roth IRA. This is a backdoor that essentially lets you make a Roth IRA contribution
every year even if you exceed the income limits for Roth contributions.

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Ethan R. Okura received his doctor of jurisprudence degree from Columbia University in 2002. He specializes in estate planning to protect assets from nursing home costs, probate, estate taxes and creditors.

This column is for general information only. The facts of your case may change the advice given. Do not rely on the information in this column without consulting an estate planning specialist.

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