Hey there everybody we are just two months shy of tax deadline (original video end of February 2023). Just a reminder, that’s April 18th this year, it usually falls on April 15th but because of a holiday around that same time it is actually going to be the 18th; So, you’re probably getting all of the paperwork ready for your tax preparers and your CPA’s. We wanted to send you a quick reminder that this is also the time you have to make any prior year IRA contributions. As you know if you have an employer plan at work you contribute all the way up until the end of last year, and then that calendar year for those contributions is complete. If you have the option, if you don’t have a retirement plan at work or you’ve maxed that out and you’re looking for other ways to contribute, you may option to make an IRA contribution, if you have the funds available. This is not a dollar-for-dollar reduction on your taxes.
Remember there’s two different types of IRA’s that you can contribute to, one is a Traditional IRA the other is a Roth IRA. The Traditional IRA has some income limits and it’s dependent on if you have a retirement plan at work or your spouse has a retirement plan at work if it may or may not be deductible. If you can make a Traditional IRA contribution but it’s not deductible really want to understand how that works because you don’t really want to commingle it with a deductible IRA, it can get really hairy because you have to track the tax basis; Be sure to consult your CPA on that.
The other option is a Roth IRA. The Roth IRA does also have income limits, your earnings can potentially knock you out from even being eligible to make a Roth IRA contribution.
Again, you can make a prior year contribution, so you can make a contribution that will impact your 2022 taxes up until the tax deadline. For 2022 the maximum that you can contribute across all IRAs, whether that’s to a traditional or Roth or a combination of the two, is $6,000 if you’re over 50 you can add an additional $1,000 to that. For 2023 there was a little bit of a bump so 2023 the maximum is $6,500 and the additional $1,000 on top of that, so $7,500 if you’re over 50.
If you have questions about how this might work for your particular plan, if you’re eligible for it, does it make sense for you to do it, what’s the potential tax impact, and just understanding that from an educational standpoint. We’d be happy to speak with you. Please reach out to us at Next Step Financial Transitions, we look forward to hearing from you. Have a good one!