Don't miss out on the opportunity to enhance your retirement savings for 2022. April 18th marks both the federal income tax filing deadline and the final day to contribute to your Individual Retirement Account (IRA) for the previous year. By understanding the rules and limits surrounding IRA contributions, you can potentially lower your taxable income for 2022, which may reduce your tax bill or increase your refund. (Most Californians get an automatic extension till October 16)
IRA Grace Period and Age Requirements
While 401(k) plans follow the calendar year, IRA accounts provide a grace period, enabling you to deposit funds in the current year for the previous year. Regardless of your age, you can make IRA contributions if you have earned income equal to or greater than your contribution amount.
2022 IRA Contribution Limits
Ensure you haven't maxed out your 2022 IRA contributions before making additional deposits. For those under 50, the 2022 limit is $6,000, while individuals 50 and over can contribute an additional $1,000. These limits apply cumulatively to both Roth and traditional IRA accounts.
Designating Contributions for 2022
When topping off your IRA for 2022, ensure your financial institution applies your contribution to the correct year. Typically you have to choose "prior year" contribution. The 2023 limits are slightly higher, with a base limit of $6,500 and an additional $1,000 catch-up for those 50 and over.
Filing Extensions and IRA Contributions
Obtaining a regular tax filing extension won't prolong the IRA contribution deadline for 2022 beyond April 18th. However, business owners using SEP IRAs can extend their contribution deadline with a tax filing extension. Additionally, taxpayers impacted by natural disasters may receive extra relief and an extended deadline for IRA contributions -- that's most of California.
Health Savings Account Contributions
The April 18th deadline also applies to 2022 Health Savings Account (HSA) contributions. These accounts allow you to save pre-tax dollars for eligible medical expenses, either now or during retirement. In 2022, individuals with qualifying high-deductible health plans can contribute up to $3,650 for self-only coverage and $7,300 for family coverage.
As the April 18th deadline approaches, it's crucial to take advantage of the opportunity to increase your retirement savings for 2022. By understanding the rules and limits surrounding IRA and HSA contributions, you can maximize your savings and potentially reduce your taxable income for the year. Don't wait—now is the time to invest in your future.