As you might already know, you can earn a valuable tax deduction for the full amount of retirement plan contributions, up to a certain limit. What you may not know is that even though the tax year ends on December 31, you can still set aside money in a retirement account and receive a deduction on your 2022 tax return.
Contributions to your 401k must be made by December 31. But if you put money in an Individual Retirement Account (IRA) by April 18, you can still deduct that amount on your 2022 tax return. And yes, both traditional and Roth IRAs are eligible for these “late” contributions.
You can also make contributions to an employee-based plan such as a SEP IRA or SIMPLE IRA, up until your company’s tax-filing deadline for the year. In most situations that means your deadline is April 18, but extensions on filing do apply to this rule too.
The limit on IRA contributions for the 2022 tax year was $6,000, or $7,000 if you’re over age 50 and make catch-up contributions. You will reduce the amount of taxable income by the amount you contributed.
Keep in mind that this opportunity is only available to those who earn below certain limits. For single taxpayers, the amount you’re allowed to contribute to a Roth IRA begins phasing out at $129,000 per year and stops completely at $144,000. For joint filers, that range is $204,000 to $214,000.
SEP and SIMPLE IRAs have more flexible limits. SEP contributions are limited at 25 percent of the tax filer’s earnings, or $61,000 (whichever is less). And SIMPLE IRAs limit contributions to $14,000 annually.
If you do make contributions between now and April 18, specify that the amount is for the 2022 tax year. And to discuss this issue further so that you can strategize your tax return, call us and we’ll be happy to help.