There’s still time to contribute pre-tax individual retirement accounts for 2022 — and maybe cut your tax bill or increase your refund – if you qualify.
For 2022, the IRA contribution limit is $6,000, plus $1,000 for investors age 50 and older, and this year’s tax filing deadline is April 18 for most Americans.
You can contribute to your 2022 IRA through the April 2023 tax filing deadline, as long as you designate the deposit for the 2022 tax year, experts say. However, you need to know the rules. IRA withholding rules before contributions, experts say.
“The withholding rules for pre-tax IRA contributions can be confusing,” said Kevin Brady, vice president of Wealthspire Advisors in New York.
That’s because eligibility depends on three factors: your application status, modified adjusted gross income and join a retirement plan at work, he said.
How to know if you qualify for tax relief
According to Julie Hall, a CFP at Vision Capital Partners in Ann Arbor, Michigan, eligibility is simplest for a couple filing together when both spouses are not participating in a retirement plan in place. work.
“Both are deductable and it doesn’t matter what their income is,” she says, which could appeal to higher earners.
However, it becomes more complicated if either partner have pension plan insurance at work and participate in the plan. “Participating” may include employee contributions, company matches, profit sharing, or other employer deposits.
Depending on your filing status and income, you may be able to deduct all, part, or no of your IRA contributions.
2022 income threshold for IRA deduction
“It’s important to understand that there are limitations to deductions,” said Malcolm Ethridge, CFP and executive vice president of CIC Wealth in Rockville, Maryland. With a workplace plan, some or all of your contributions may not be deductible, depending on income.
For 2022, single investors with workplace retirement plans can claim a tax break on their entire IRA contributions if their adjusted adjusted gross income is $68,000. go down.
While there is a partial deduction before reaching $78,000, the tax relief disappears once that threshold is reached.
Even if you’ve maxed out your plan at your current employer, your earnings may still be low enough to qualify for a tax deduction. [IRA] contribution.
Malcolm Ethridge
Executive Vice President of CIC Wealth
Couples filing taxes together can get the full benefit with incomes of $109,000 or less, and they can get a partial tax break before they hit $129,000.
You can view the full IRS chart for 2022 of IRA withholding capacity This.
“Even if you’ve reached the maximum plan at your current company, your earnings may still be as low as a tax deduction.” [IRA] contribute,” said Ethridge.
How to know if pre-tax IRA contributions make sense
Of course, just because you qualify for the deduction doesn’t mean you should make a pre-tax IRA contribution, says Hall.
Before making a deposit, investors need to weigh their investment goals, along with their current tax bracket, against the expected tax bracket in retirement, she said.
Plus, you can consider your other retirement savings — and the tax consequences of withdrawals, such as capital gains, ordinary income taxes, or tax-free income.
“Yes, you can benefit from the deductible today,” Hall said. But you can choose to diversify your taxes even further by adding more to a different type of account, she says.
