Tuesday August 16, 2022
Make 2021 IRA Contributions By April 18, 2022
In IR–2022–52 the Internal Revenue Service reminded taxpayers to consider taking a deduction for a 2021 contribution to an Individual Retirement Account (IRA). The contribution may be made prior to filing your tax return on April 18, 2022.
IRAs are a popular savings plan. Individuals with earned income may contribute to a traditional IRA and qualify for a deduction on their 2021 tax return. Traditional IRA or Roth IRA contributions are subject to many rules and limits. IRA contributions may be reduced for individuals with higher incomes.
- IRA Contribution Limits — The basic rule for an IRA contribution is a limit of $6,000 for individuals under age 50. Individuals age 50 or older are permitted to add $1,000 as a "catch–up" contribution, for a total amount of $7,000. The contribution limit is not affected by rollovers of existing IRAs.
- IRA Deduction Limits If Covered — If you are covered by a retirement plan at work and your income is above specific limits, you may be limited in your IRA contribution amount. A single person may take a full IRA deduction with $66,000 or less of modified adjusted gross income (MAGI). The IRA contribution is phased out between $66,000 and $76,000 of MAGI. If you are married and filing jointly or you are a qualified widower, the MAGI limit is $105,000 and the IRA is phased out over the next $20,000. Married couples filing separately have a limit of $10,000 of MAGI.
- IRA Deduction Limits If Not Covered — If you do not have a retirement plan at work, there are higher limits. A single person or married person filing jointly whose spouse is not covered by a retirement plan may contribute any amount to an IRA even if he or she has a high income. If you are married to a spouse who is covered by a plan at work, the MAGI limit is $198,000 and the IRA deduction is phased out over the next $10,000. If you are married and filing separately with a spouse who is covered, the MAGI limit is $10,000.
- Roth IRA Contribution Limits — If you are married and filing jointly or you are a qualifying widower and desire to make an after–tax Roth IRA contribution, you may do so if your MAGI is less than $198,000. The Roth IRA contribution is phased out over the next $10,000. If you are single or head of household, your Roth contribution limit is $125,000 and the amount is phased out over the next $15,000. If you are married filing separately, the MAGI limit is $10,000.
- IRA Contributions After Age 70½ — For tax year 2021, there is no longer an age limit on contributions to traditional IRAs. You may contribute to a Roth or traditional IRA if you have earned income.
- Spousal IRAs — If you file a joint return and your spouse has earned income, you are qualified to contribute to an IRA even if you did not have income. The limit for both spouses is the $6,000 or $7,000 contribution per spouse (depending upon age), but may not exceed your total earned income.
- Tax on Excess IRA Contributions — If you contribute more than your qualified IRA amount, there is a 6% tax each year on the excess amounts in your IRA. To avoid a 6% tax on the excess contribution, you should withdraw that amount by April 18, 2022.
Published March 11, 2022
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