There's Still Time to Fund an IRA for 2022

The tax filing deadline is fast approaching, which means time is running out to fund an IRA for 2022.

If you had earned income as an employee or self-employed person last year, you may be able to contribute up to $6,000 for 2022 ($7,000 for those age 50 or older by December 31, 2022) up until your tax return due date, excluding extensions. For most people, that date is Tuesday, April 18, 2023.

You can contribute to a traditional IRA, a Roth IRA, or both. Total contributions cannot exceed the annual limit or 100% of your taxable compensation, whichever is less. You may also be able to contribute to an IRA for your spouse for 2022, even if your spouse didn't have earned income.

Traditional IRA contributions may be deductible

If you and your spouse were not covered by a work-based retirement plan in 2022, your traditional IRA contributions are fully tax deductible.

If you were covered by a work-based plan, you can take a full deduction if you're single and had a 2022 modified adjusted gross income (MAGI) of $68,000 or less, or if married filing jointly, with a 2022 MAGI of $109,000 or less. You may be able to take a partial deduction if your MAGI fell within the following limits:

Filing as:	MAGI is between:
Single/Head of household	$68,000 and $78,000*
Married filing jointly	$109,000 and $129,000*
Married filing separately	$0 and $10,000*

*No deduction is allowed if your MAGI is more than the above listed maximum MAGI.

If you were not covered by a work-based plan but your spouse was, you can take a full deduction if your joint MAGI was $204,000 or less, a partial deduction if your MAGI fell between $204,000 and $214,000, and no deduction if your MAGI was $214,000 or more.

Consider Roth IRAs as an alternative

If you can't make a deductible traditional IRA contribution, a Roth IRA may be a more appropriate alternative. Although Roth IRA contributions are not tax-deductible, investment earnings and qualified distributions** are tax-free.

You can make a full Roth IRA contribution for 2022 if you're single and your MAGI was $129,000 or less, or if married filing jointly, with a 2022 MAGI of $204,000 or less.

Partial contributions may be allowed if your MAGI fell within the following limits:

Filing as:	MAGI is between:
Single/Head of household	$129,000 and $144,000*
Married filing jointly	$204,000 and $214,000*
Married filing separately	$0 and $10,000*

*You cannot contribute if your MAGI is more than the above listed maximum MAGI.

Tip: If you can't make an annual contribution to a Roth IRA because of the income limits, there is a workaround, often referred to as a “Backdoor Roth IRA” contribution. You can make a nondeductible contribution to a traditional IRA and then immediately convert that traditional IRA to a Roth IRA. Keep in mind, however, that you'll need to aggregate all traditional IRAs and SEP/SIMPLE IRAs you own — other than IRAs you've inherited — when you calculate the taxable portion of your conversion.

**A qualified distribution from a Roth IRA can be made after the account is held for at least five years and the account owner reaches age 59½, becomes disabled, or dies. Under this so called 5-year rule, if you make a contribution  — no matter how small — to a Roth IRA for 2022 by your tax return due date, and it is your first Roth IRA contribution, your five-year holding period starts on January 1, 2022. Regardless of your Roth contribution’s holding period, in an emergency, you can withdraw your Roth IRA contributions (not the earnings) without penalty at any time.

If you would like to review your current investment portfolio or discuss any other financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fee-only fiduciary financial planning firm that always puts your interests first.  If you are not a client yet, an initial consultation is complimentary and there is never any pressure or hidden sales pitch. We start with a specific assessment of your personal situation. There is no rush and no cookie-cutter approach. Each client is different, and so is your financial plan and investment objectives.