While many of us don’t start preparing for taxes until the new year, there are many steps you can take now to help relieve your tax burden.
When it comes to retirement planning, there are additional strategies that help maximize your savings benefits as well. With these strategies, it’s important to be aware of limits and deadlines that come along with them, so you can take full advantage of your savings opportunities.
Here’s everything you need to know about IRAs and the contribution deadlines for 2022.
What is an IRA?
An individual retirement account (IRA) allows you to save money for retirement in a tax-advantaged way. An IRA account is set up at a financial institution that allows an individual to save for retirement with tax-free growth or on a tax-deferred basis. The two most common types of IRAs are Traditional IRA and Roth IRA.
With a traditional IRA you make contributions with money you may be able to deduct on your tax return, and any earnings can potentially grow tax-deferred until you withdraw them in retirement. Many retirees find themselves in a lower tax bracket than they were in pre-retirement, so the tax-deferral means the money may be taxed at a lower rate.
Roth IRAs allow you to make contributions with money you have already paid taxes on. Your money may potentially grow tax-free, with tax-free withdrawals in retirement, provided that certain conditions have been met.
IRA Contribution Deadlines for 2022
Typically, the IRA contribution deadline falls on the same day as the tax deadline, which would be April 15. But the IRS recently updated the IRA contribution deadline to April 18. So you can now make 2022 IRA contributions until April 18, 2023.
The Importance of the IRA Contribution Deadline
Obviously, it’s important to be aware of the deadlines so you have as much time as possible to save up and make the contributions in the first place. But beyond that, there are additionally significant potential tax benefits. Once we hit the end of the year, you are more limited in the actions you can take to reduce your tax obligations for that year. However, contributions to an IRA are a huge exception.
IRA contributions are often tax deductible. In addition to providing significant tax savings, in some cases reducing your taxable income could impact eligibility for certain income-based entitlement programs. Your contribution may even be eligible for Saver’s Credit, which is a government funded tax credit that matches the percentage of your retirement contribution, up to 50%.
Additionally, IRA contributions are “above the line,” meaning that you can claim a deduction even if you do not itemize your taxes and take the standard deduction instead. Any contribution can reduce your adjusted gross income on a dollar-per-dollar basis. All IRAs are eligible for contributions for the prior year through the tax deadline, but there are some other factors to be aware of:
- Roth IRA contributions are not tax deductible.
- Traditional and Roth IRAs have inflation-adjusted contribution limits.
- Traditional and Roth IRAs have catch-up contributions for those age 50 and over.
- There are IRA income limits that change annually, meaning not everyone is eligible to deduct Traditional IRA contributions or make direct Roth IRA contributions.
IRA Contribution Limits for 2022 and 2023
Contribution limits set how much you’re allowed to contribute to a qualifying IRA plan every year. The IRS recently announced that contribution limits have been raised for 2023. The hike in contributions limits is the result of inflation and cost-of-living adjustments. This change has come at the perfect time, with the federal government recently announcing we’ve hit the highest inflation rate in four decades.
For tax year 2022 and 2023, the IRS published the following limits:
2022
Standard Contribution Limit: $6,000 per taxpayer 49 and younger
Catch-Up Contribution Limit: $7,000 per taxpayer 50 and older
2023
Standard Contribution Limit: $6,500 per taxpayer 49 and younger
Catch-Up Contribution Limit: $7,500 per taxpayer 50 and older
These limits apply to all IRA accounts for an individual taxpayer, meaning that a single taxpayer could split these limits for each year between their Roth and traditional IRA. A married couple could also double the amount of their limits with their combined accounts. Past this limit, you can continue to make contributions to a traditional IRA, but it must be with post-tax dollars.
It’s also important to note that contribution limits are per taxpayer, not per account. So if you have a traditional and Roth IRA, you have to split your contributions across both accounts up to the limit.
Final Thoughts
We understand the end of the year can be very stressful, but we don’t want financial planning to feel that way. While it’s possible to do it on your own, it never hurts to have professional financial help. The financial professionals at APO Financial put your needs at the forefront of everything we do, tailoring each plan to your goals. No matter where you’re at in your financial journey, we can help you get to success,
Ready to get started? APO Financial is committed to helping you maximize your savings and making your retirement as fulfilling as you want it to be. Contact us today for more information about our services, products or approaches. We’ll schedule a meeting that is most convenient and comfortable for you, whether that is in person, virtually or by phone.
© 2022 APO Financial. All rights reserved. Disclosure: Communications such as this are not impartial and are provided in connection with advertising and marketing. This material is not suggesting a specific course of action or any action at all.. Prior to making any investment, insurance, financial or legal decision, you should always seek individualized advice from a financial, insurance, legal or tax professional that takes into account all of the particular facts and circumstances of your individual own situation Investment advice is offered through APO Financial Services, LLC (“APO") 10155 Westmoor Drive, Suite 175, Westminster, Colorado 80021-2627, an investment adviser registered with the Securities and Exchange Commission. Registration with the SEC should not be construed to imply that the SEC has approved or endorsed qualifications or the services offered or that its personnel possess a particular level of skill, expertise or training. Important information and disclosures related to APO are available at https://apofinancial1.wpengine.com. Additional information pertaining to APO’s registration status, its business operations, services and fees, and its current written disclosure statement is available on the SEC’s investment adviser public website at https://www.adviserinfo.sec.gov. Information relating to annuities is intended for educational purposes only and should not be construed as comprehensive or all-inclusive. Therefore, it should not be regarded as a complete analysis of the subjects discussed and should not be used to make an investment decision. Annuities can be an important part of an overall portfolio but may not be appropriate for everyone. Before purchasing an annuity, it is important to understand the details of the product. Certain products may not be available in your state. The terms of each indexed annuity varies. It is always important to speak to a financial professional. about an annuity’s features, benefits and fees, and whether an annuity is appropriate for you, based on your financial situation and objectives. Participation rates, cap rates and/or index spreads may be subject to change by the insurance company according to the annuity contract provisions. If the insurance company makes such changes, this could adversely affect the return. Guarantees of an indexed annuity are backed by the claims-paying ability of the underwriting insurance company. The surrender charge period for a product may be longer, and the surrender charges may be higher than other annuity products. Indexed annuities are long-term investments. If the annuity contract is surrendered early, there is the possibility of a surrender charge being imposed and/or the funds may be subject to income taxes. The IRS may also impose a 10% penalty on withdrawals prior to age 59 ½, depending on the circumstances. With indexed annuities, there is the potential to lose money, depending on the product charges and minimum guarantee contract provisions. For additional information on annuities, reference the following websites: The FINRA (www.FINRA.org), the Securities and Exchange Commission (www.SEC.gov), Insured Retirement Institute (www.irionline.org), the National Association of Insurance Commissioners (www.NAIC.org) or your state's insurance department.