Watch Out: Deadline Is Looming to Max Out 2022 IRA Contributions

We’re well into the new year, but retirement savers can still make contributions to retirement accounts for tax year 2022. Savers have until April 18 –  Tax Day – to contribute to their individual retirement accounts (IRAs), simplified employee pension plans (SEP-IRAs) and savings incentive match plans for employees (SIMPLE-IRAs).

A financial advisor can help you plan for retirement and manage your IRA. Find an advisor today.

The overhang for contributions until April allows people who can afford it to double up their IRA contributions by topping off their 2022 contributions while starting their 2023 contributions at the same time.

Contribution Limits Examined

For 2022, the IRA contribution limit for traditional and Roth IRA accounts is $6,000, while anyone 50 and older 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 as much as $14,000 in 2022 and $15,500 in 2023.

With 2022 contributions allowed up until Tax Day, investors can do a bit of reverse tax planning and reduce their taxable income for the year with a contribution to a tax-deferred IRA. All other tax-deductible expenses must have been paid by Dec. 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. The limits on contributions to a SIMPLE IRA don’t count against your annual IRA limit but 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

If you contribute more than the limit allows, the IRS penalty is 6% of the excess contribution every year until the extra contribution is corrected.

For Roth IRA contributions, remember that there are income limits. Single tax filers can contribute up to the limit if their modified adjusted gross income (AGI) is less than $138,000 and can’t contribute at all if their modified AGI is more than $153,000. Income that falls between those limits means your Roth contributions must be reduced.

Joint filers can have modified AGI of up to $218,000 with no problem but can’t contribute to a Roth if their income was more than $228,000. Income between those amounts results in a reduced contribution limit. You can find the formula for calculating 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 spouse without earnings to contribute to his or her own IRA as long as the person file a joint return and the person’s spouse did report earned income.

Each spouse can make a contribution up to the current limit. However, the sum of your combined contributions can’t be more 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 lost your chance to make a tax-deductible contribution to an IRA. Retirement savers have until April 18 to contribute to an IRA, SEP-IRA or SIMPLE IRA and effectively lower their taxable income for 2022. Just be mindful of the contribution limits for each account and other key tax considerations.

Retirement Planning Tips

• A financial advisor can be a valuable partner as you begin to plan for retirement. An advisor can help you set savings goals, project 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 who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

• The longer you delay claiming Social Security prior to age 70, the larger your eventual benefit will be. However, claiming at full retirement age gives you a headstart compared to waiting until 70. Before you decide, use our Social Security calculator to determine how long you’ll have to live to make delaying Social Security worth it.

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