There’s Still Time to Max out Your IRA for 2021
If you didn’t max out your IRA in 2021, don’t worry, there’s still time.
The deadline for making contributions that will count towards a 2021 IRA deposit is April 15, 2022. You will need to adhere to the 2021 contribution limits, but according to the IRS, all contribution limits for 2019-2022 are the same. The limits are $6,000 per year for ages 50 and under and $7,000 per year for ages 50 and up.
This catch-up provision allows investors extra time to contribute to their IRAs, while still allowing time to make contributions for 2022 as well.
While investors who contribute to a traditional and/or a Roth IRA are granted the 4 month extension, the tax implications of each account are different. Investors contributing to a traditional IRA need to pay special attention when filing their taxes each year, as there are specific tax benefits when investing in this type of IRA.
Traditional IRA contributions go in pre-tax, grow tax-deferred, and are taxed on the back end once they come out. Contributions to a traditional IRA are tax-deductible at both the state and federal tax level for the year you make the contribution — meaning that you have to claim the amount you invested each year on your annual tax return.
These tax deductions can lower your taxable income rate in the year which you invested. So, for your 2021 taxes, you can still max out your traditional IRA and use that investment to lower your taxable base — all by April 15. Depending on what your adjusted gross income is after the deduction, this might then also make you eligible for other tax incentives (like a child tax credit, saver’s credit, rebate credit, etc.) you otherwise might not have qualified for.
Roth IRAs work a little differently. Roth IRA investments are put in post-tax (meaning from money that has already hit your bank account and thus been taxed), grow tax-deferred and then are distributed tax-free on the back end. You cannot deduct contributions from a Roth IRA on your annual tax return, because you’ve already paid taxes on the money.
Nonetheless, investors in a Roth IRA are still granted the same contribution extension as traditional IRA investors and have until April to make sure they get their investment made. It is possible to hold both a Roth and traditional IRA, but only up to the maximum allowable limit for all IRAs. For someone under 50 years old in 2022 or 2021, this would mean $3,000 in each account.
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