The deadline to maximize 2022 IRA contributions is approaching
We’ve entered the new year, but saver retirees can still contribute to retirement accounts for tax year 2022. Savers have until April 18 – Tax Day – to contribute to their individual retirement accounts (IRAs), plans Simplified Pension Plans for Employees (SEP -IRA) and Savings Incentive Plans for Employees (SIMPLE-IRA).
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Surplus contributions through April allows people who can afford it to double their IRA contributions by completing their 2022 contributions while starting their 2023 contributions at the same time.
Contribution limits reviewed
The deadline to maximize 2022 IRA contributions is approaching
For 2022, the IRA contribution limit for traditional and Roth IRA accounts is $6,000, while anyone over 50 can contribute an additional $1,000 for a total of $7,000. Self-employed people with a SEP-IRA can contribute up to 25% of their net earnings up to $61,000 for 2022 and $66,000 for 2023. Anyone with a SIMPLE IRA can contribute up to $14,000 in 2022 and $15,500 in 2023 .
With 2022 contributions allowed through Tax Day, investors can do some reverse tax planning and reduce their taxable income for the year with a contribution to a deferred IRA. All other tax-deductible expenses must have been paid by December 31, 2022.
Investors should remember that contributions to Traditional IRAs, Roth IRAs, and SEP-IRAs all count toward your IRA contribution limit for the year. Limits on contributions to a SIMPLE IRA don’t count against your IRA annual limit but they do count against your annual limit for 401(k)s and similar accounts, which is $20,500 for 2022 and $22,500 for 2023.
Other key tax considerations
The deadline to maximize 2022 IRA contributions is approaching
If you contribute more than the allowable limit, the IRS penalty is 6% of the excess contribution each year until the excess contribution is corrected.
For Roth IRA contributions, remember that there are income limits. Single tax filers can contribute up to the limit if their adjusted gross income (AGI) is less than $138,000, and cannot contribute at all if their adjusted AGI is more than $153,000. Income that falls between these limits means your Roth contributions need to be reduced.
Joint filers may have adjusted AGI up to $218,000 without issue, but cannot contribute to a Roth if their income was more than $228,000. Income between these amounts results in a reduced contribution limit. You can find the formula for calculating the reduced contribution amounts here.
While any type of IRA requires contributions to come from earned income, there is one exception: the Kay Bailey Hutchison Spousal IRA. This account allows a non-earnings spouse to contribute to their IRA as long as the person files a joint return and the person’s spouse has filed earned income.
Each spouse can pay a contribution up to the limit in force. However, the sum of your combined contributions cannot be higher than the taxable income reported on your tax return. If neither spouse participated in a retirement plan at work, all of your contributions will be deductible.
The bottom line
2022 may be over, but that doesn’t mean you’ve missed out on making a tax-deductible contribution to an IRA. Retirees have until April 18 to contribute to an IRA, SEP-IRA, or SIMPLE IRA and actually lower their taxable income for 2022. Just be aware of the contribution limits for each account and other key tax considerations.
Retirement planning tips
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A financial advisor can be a valuable partner as you begin planning for your retirement. A counselor can help you set savings goals, predict how much money you’ll need in retirement, and calculate a withdrawal rate. SmartAsset’s free tool matches you with up to three vetted financial advisors serving your area, and you can interview your advisors at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you reach your financial goals, get started now.
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The longer you delay applying for Social Security before age 70, the higher your final benefit will be. However, claiming at full retirement age gives you an edge over waiting until age 70. Before you decide, use our Social Security calculator to determine how long you’ll need to live to make delaying Social Security worth it.
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The post Deadline Is Looming to Max Out 2022 IRA Contributions first appeared on the SmartAsset Blog.
