Can I Still Contribute to My Individual Retirement Accounts for 2022?

Ask a Planner: Can I Still Contribute to My Individual Retirement Accounts for 2022?

Did you know there is still time to contribute to your individual retirement accounts for 2022 and bolster your retirement savings?  April 18^th is both the federal income tax filing deadline and the last day to make a contribution to your individual retirement account for last year. 1

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, by either 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.  Individuals with “earned income”, such as wages or salary from a job, or self-employment earnings can contribute up to the IRS maximum of $6,000 (or a catch-up contribution of $7,000 if you are over 50) into individual retirement accounts for tax year 2022, as long as those wages are at least equal to the amount of your contribution. 

If you have both a Roth IRA and a traditional IRA, those limits apply to both accounts together, so the cumulative amount contributed to both accounts cannot exceed the IRS maximum of $6,000 ($7,000 if over 50). 

Whether you can contribute to a traditional or Roth IRA depends on your income.  In order to be eligible to contribute to a Roth IRA for tax year 2022, your Modified Adjusted Gross Income (MAGI) must have been under $144,000 for single tax filers and under $214,000 for married couples filing jointly.

Roth IRA contributions are not 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. 

However, If your income precludes you from being able to make tax-deductible contributions to a traditional IRA and you still want access to retirement savings vehicles, you can choose to make contributions to a non-deductible IRA.  A non-deductible IRA is a retirement plan you fund with after-tax dollars. You can’t deduct contributions from your income taxes as you would with a traditional IRA, however, your non-deductible contributions grow tax-free and any investment returns you earn in the account will be tax-deferred until you take distributions in retirement.

Those with higher incomes often choose to make non-deductible contributions to a traditional IRA and then convert those to a Roth IRA through a backdoor Roth conversion.  A backdoor Roth conversion can be done fairly easily, even for those higher income individuals who earn too much to otherwise be eligible for a Roth account.

When you make contributions to a Roth, you do it with after-tax dollars. When you convert non-deductible IRA contributions to a Roth, you’re converting after-tax dollars, too.  Once that conversion is complete, any investment growth within the account can be pulled out as a qualified distribution tax-free.

Navigating all the different options can seem daunting and determining the best retirement strategy is a highly personalized decision.  Each individual situation requires careful tax and financial analysis.  Reach out if you would like to discuss your retirement planning strategy in more detail.

However, If you decide to contribute to 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.)

Reach out if you have any questions or want to discuss how to think through making this decision personally: dc@zuckermaninvestmentgroup.com.

Written by Dana R. Cahan, CPWA

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