Boost Your Retirement Savings and Cut Your Tax Bill

It isn’t too late to boost your retirement savings for 2022. April 18 is both the federal income tax filing deadline and the last day to make a contribution to your individual retirement account for last year.

While 401(k) plans run on a calendar year, IRA accounts have a grace period that allows you to deposit money in the current year and apply it to the prior year. Depending on your situation, this could potentially lower your taxable income for the year—reducing your tax bill if you owe money or increasing your refund if you don’t.

There is no age limit to making IRA contributions, as long as you have earned income. You can’t contribute to these retirement accounts unless you have wages from a job at least equal to the amount of your contribution.

What Is the IRA Contribution Limit for 2022?

You can only make a 2022 contribution this spring if you haven’t already maxed out your account for last year. The limits on IRA contributions for 2022 are $6,000 for those under 50, with an additional $1,000 allowed for anyone 50 and over. To make a catch-up contribution for 2022, you would need to have turned 50 by Dec. 31, 2022. But if you turn 50 this year, you don’t need to wait until your birthday to make a catch-up contribution for 2023.

If you have a Roth IRA and a traditional IRA, those limits apply to both accounts together; funneling money to one will reduce the amount you can deposit into the other. Roth IRA contributions aren’t tax-deductible, while the tax deductibility of traditional IRA contributions will depend on circumstances like your income and whether you have access to a 401(k) or equivalent account at work.

Roth contributions are subject to income restrictions. For 2022, you can only contribute to a Roth if your modified adjusted gross income is less than $144,000 for single filers and under $214,000 for married couples filing jointly.

If you decide to top off your IRA for last year, make sure your financial institution knows that your contribution is designated for 2022 so it doesn’t count the amount toward 2023. (The 2023 limits are higher—$6,500 for those under 50, with an additional $1,000 for those 50 and over.)

What If You File for an Extension?

Note that filing for a regular extension, which would give you until Oct. 16 to file your 2022 taxes, won’t extend the IRA contribution deadline for last year beyond April 18. (SEP IRAs, which are used by business owners, are one exception: a tax filing extension does extend the deadline to contribute to a SEP IRA.)

Taxpayers impacted by natural disasters are eligible for extra relief. Disaster extensions, which are technically a postponement in the eyes of the IRS, extend the deadline for making IRA contributions for the prior year.

Don’t Forget Your Health Savings Account

April 18 is also the deadline to contribute to your health savings account for 2022. These accounts allow participants to save pre-tax dollars toward eligible medical expenses now or in retirement. For 2022, those with a qualifying high-deductible health plan can contribute up to $3,650 to their HSA for self-only coverage and up to $7,300 for family coverage.

By Elizabeth O’Brien

Write to Elizabeth O’Brien at elizabeth.obrien@barrons.com


Advisory services are offered through Asset Strategy Advisors, LLC (ASA). Securities are offered through representatives licensed with either Concorde Investment Services, LLC (CIS), member FINRA/SIPC, or RCX Capital Group, LLC (RCX), member FINRA. Insurance is offered through Asset Strategy Financial Group, Inc. (ASFG). ASFG and ASA are independent of CIS and RCX.

Because investor situations and objectives vary this information is not intended to indicate suitability for any individual investor.

This is for informational purposes only, does not represent legal or tax advice does not indicate suitability for any particular investor, and does not constitute an offer to purchase or sell investments. Please consult the appropriate professional regarding your individual circumstance.

Content regarding social security is not associated with or endorsed by the Social Security Administration or any other government agency.

Maximizing your Social Security Benefits assumes foreknowledge of your date of death.  If as an example you wait to claim a higher monthly benefit amount but predecease your average life expectancy, it would have been better to claim your benefits at an earlier age with reduced benefits. The data contained in this material was obtained from third-party sources believed to be reliable; however, ASA, RCX, ASFG, and CIS do not guarantee the accuracy of the information.

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