FUND YOUR IRA EVERY YEAR
For 2022 the IRA Contribution Limits are $6,000. Taxpayers aged 50 (at any time during the year) or older can make an additional catch-up contribution of up to $1,000. Many people think that if their company has a 401(k) or 403(b) Plan that this prevents them from being able to contribute to an IRA, this is not true. The Internal Revenue Code (IRC) trips a lot of people up in this area. It’s the deductibility of the IRA contribution amount that has limitations, not the eligibility to contribute to an IRA. If you have earned income (W-2 income from your employer, or self-employed income reported on your Schedule C of your 1040 tax return) you are eligible to contribute to your IRA up until April 15th of the year following the tax year where you had earned income. Your IRA contribution cannot exceed your earned income. Making a non-deductible IRA contribution is not as bad as it sounds. Upon withdrawal of the IRA, (hopefully in retirement) you now have a tax-free basis in your IRA. Since you already paid taxes on these funds (the non-deductible part) upon each IRA withdrawal your proportionate share of your IRA basis is returned to you tax free. Only its earnings are taxed as ordinary income. What you achieved here is tax deferred growth for hopefully many years.
To determine the deductibility of your Traditional IRA contribution, first you need to know if you ARE covered by a Retirement Plan at Work, such as a 401(k) or 403(b) plan. If so, then there is separate table for this group of taxpayers from those who ARE NOT Covered by a Retirement Plan at work. These tables follow and are for tax year 2022.
2022 – IRA Deduction if You ARE Covered by a Retirement Plan at Work
* If you file separately and did not live with your spouse at any time during the year, your IRA deduction is determined under the “single” filing status.
2022 – IRA Deduction if You ARE NOT Covered by a Retirement Plan at Work
* If you file separately and did not live with your spouse at any time during the year, your IRA deduction is determined under the “single” filing status.
