Each year, we urge smart savers to contribute as much as possible to their retirement plans, so that they can earn a valuable deduction on their income tax returns. Essentially, your taxable income is lowered by the amount of your contributions, up to certain limits. And in most cases, you must make those contributions by December 31 in order to count them against that year’s income.
One loophole allows you to make tax deductible contributions to a retirement plan after December 31, as long as you do so by the tax filing deadline. You can do this if you contribute to an Individual Retirement Account (IRA), or if you participate in your company’s SEP or SIMPLE IRA. For the 2022 tax year, you can contribute up to $6,000 to your IRA, or $7,000 if you’re over age 50, and claim the same amount as a deduction on your income tax return.
Of course, not everyone is eligible to contribute to an IRA. Full contributions to these types of accounts are limited to those earning less than $129,000 annually, if they file individual tax returns, and the amount of the contribution is phased out up to $144,000 annually. For married taxpayers, the phaseout range falls between $204,000 and $214,000.
For SEP and SIMPLE IRAs, the contribution limits are more generous. You can contribute the lesser of 25 percent of your income, or $61,000, to a SEP IRA. For SIMPLE IRAs the contribution limit is $14,000 annually. For both of these accounts, you must make contributions by your company’s tax filing deadline. That’s usually April 18, but some variations (such as when the company has requested an extension) do occur.
Just a final tip: If you do make IRA contributions now, make sure to specify that the amount is intended to go toward 2022 contributions. If you need more information on this topic, call us and we’ll be happy to review your tax savings options.