The deadline to contribute to your IRA or Roth IRA is fast-approaching.
The tax deadline to contribute to your IRA or Roth IRA for 2022 is April 18, 2023. The contribution limit for the 2022 tax year is $6,000, with an additional catch-up amount of $1,000 for taxpayers over the age of 50 years old. To qualify for contributions, you must have earned income during the tax year.
The contribution limit increases for the 2023 tax year under the SECURE Act 2.0. The annual contribution limit was raised to $6,500, with an additional catch-up amount of $1,000 for those over 50 years old. The same rules apply, meaning, you must have earned income to be eligible to contribute during that tax year.
If you have both an IRA and Roth IRA, your contribution is limited to the cumulative totals above.
How to Determine if an IRA or Roth IRA is Right for You
If you don’t contribute to either an IRA or Roth IRA and are considering its benefits, we outlined the advantages of these accounts below. Please note that a key difference between the two types is when you see a tax benefit.
IRA: Under an IRA, individuals can see a tax benefit immediately. If you have earned income, you can make tax-deductible contributions — though this depends on if you participate in an employer plan. Withdrawals of your pre-tax contributions and earnings are taxed as income past the age of 59 ½ years old, and additional tax penalties occur when early withdrawals take place.
Roth IRA: A Roth IRA provides a tax benefit in the future. Contributions are made with after-tax money, and contributors see no deduction. As a result, withdrawals are typically tax- and penalty-free on funds that have been in your account for at least five years (and if you are beyond the age of 59 ½ years old). Due to the nature of Roth IRAs, there are income eligibility restrictions on contributions.
Please click here for the 2022 Roth IRA contribution limits and phase-out data from the IRS.
Both IRAs and Roth IRAs are advantageous individual retirement accounts. If your employer offers one of these contribution plans, be sure to examine its implications on your personal financial situation. And don’t forget to make contributions before April 18. If you have any questions about IRAs or Roth IRAs, please talk to our team.
Sikich Financial does not provide tax or legal advice. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
These materials are based upon publicly available information and are provided for general information and educational purposes only. Although the information contained herein has been compiled from data considered to be reliable, the information is unaudited and is not independently verified, and therefore we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.