It’s the end of Q1 which means the tax deadline is right around the corner. This year the tax deadline is Tuesday, April 18th since the usual deadline, April 15th, fell on a weekend and Monday, April 17th, Emancipation Day, is a federal holiday marking the end of slavery in the District of Columbia. One of the most important aspects of our job is to help our clients save for retirement and plan tax-efficient strategies. One effective strategy for doing so is to contribute to your Individual Retirement Accounts (IRAs) before the tax deadline.
Contributing to an IRA can be done up until the tax deadline, April 18th, while still getting credit towards your 2022 taxes. There are two types of IRAs you can contribute to. By making a contribution to a Traditional IRA, you may be able to reduce your taxable income for the year, potentially lowering the amount of income tax owed to the government. This can help you keep more of your hard-earned money and build more of your retirement savings.
It’s also important to know that, you can take advantage of tax-deferred growth via a Roth IRA by contributing to a Roth IRA before the tax deadline. Roth IRA contributions are taxed on the front end, which means that any earnings generated by the Roth IRA investments can grow tax-free until the funds are withdrawn in retirement. This tax-deferred growth can help clients accumulate more funds over time and potentially increase their retirement savings.
You should also understand on the different types of IRAs available, including Traditional and Roth IRAs, that there are contribution limits for each. For example, for the tax year 2022, individuals under the age of 50 can contribute up to $6,000 to their Traditional or Roth IRA, while those over 50 can contribute up to $7,000. Please be mindful of income limits for Roth IRA account contributions.
Keep in mind that you can only contribute to an IRA using earned income, money derived from paid work. So whether you’re still working, or retired and working part-time, it is likely that you should be contributing to an IRA. And, if you have a significant balance of non-qualified money, usually money in savings, CD’s, brokerage accounts, etc. using that money to make your contributions would turn the non-qualified, double-taxed money, meaning money that you pay income tax on and any capital gain, into qualified money where you’d only need to pay taxes once.
It’s our job to help clients understand the benefits of this strategy and guide you in making informed decisions about your retirement savings.
by Gianni Perkovic