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Each New Year brings with it a great reset when it comes to tax and investing rules that revolve around the calendar. For people who are looking to save for their retirements, some of the most important calendar resets are the ones that affect IRA and 401(k) contributions.
When it comes to these powerful, retirement-focused investing plans, Congress limits both how much you can contribute and when you can contribute your money to them. Paying attention to those rules can help you use those plans more effectively, enabling you to save for your future that much better. With that in mind, these are your new IRA and 401(k) contribution windows for 2022.
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Your IRA contribution windows for 2022
You can contribute to your Traditional or Roth IRA for 2022 at any time between Jan. 1, 2022 and April 15, 2023. Do note that if you’re planning on making a backdoor Roth IRA contribution for 2022, the Roth conversion part needs to be completed by Dec. 31, 2022 for the entirety of the process to count for 2022. That timeline also means that if you are eligible and want to contribute to your Traditional or Roth IRA for 2021, you still can, up until April 15, 2022.
The maximum you can contribute is $6,000 if you’re under age 50, or $7,000 if you’re age 50 or up. Do note that in order to contribute to either a Traditional or a Roth IRA, you have to have sufficient taxable compensation (income from a salary or contract-style work) to cover your contribution.
In addition, while there is no upper limit to your income when it comes to making a Traditional IRA contribution, there are limits if you want to make such a contribution deductible.
Traditional IRA contributions start to lose their deductibility based on your tax filing status, your income, and whether or not you’re covered by a retirement plan at work. If you or your spouse are covered by a retirement plan at work:
The phase-out range starts at $68,000 for single folks.
It starts at $109,000 for an employed spouse in a married filing jointly couple.
It starts at $204,000 for an unemployed spouse (or one employed by a business that does not offer a retirement plan) in a married filing jointly couple.
If you’re married filing separately, the phase-out range starts at $0.
If neither you nor your spouse (if you are married) are covered by a retirement plan at work, you can deduct your full Traditional IRA contribution no matter what your income or tax filing status is.
Roth IRA contributions are never deductible, but there are income limits when it comes to making a contribution. For singles, the phase-out range starts at $129,000, and for those who are married filing jointly, it starts at $204,000.
Your 401(k) contribution windows for 2022
If you have a 401(k) or similar employer-sponsored retirement plan available to you, the rules are a bit different than with an IRA. For starters, the contribution windows are based on a plan year — typically the calendar year. This means that if your plan is on a calendar year basis, for 2022, you can only contribute to that year’s plan within the period from Jan. 1, 2022 through Dec. 31, 2022.
In addition, your 401(k) contributions typically need to be made directly via payroll deduction. That not only means the money has to be covered by your salary-type income, but it also means you generally can’t write the plan a check from another source of funds and have it count as a contribution.
The key advantages of 401(k) style plans come from the fact that they’re a bit less restrictive on contributions than IRAs are. For a 401(k) there is not a general income limit that completely prohibits you from participating in either a Roth or a traditional style plan. In addition, there are no income limits that restrict your ability to deduct your traditional 401(k) style contribution.
The biggest catch you might find with your ability to contribute to your employer’s 401(k) style plan is that those plans are subject to top heavy tests. If you’re a highly compensated employee (generally speaking, the restrictions kick in at $135,000 in 2022), your plan may be forced to limit your contribution unless enough lower-paid employees participate.
Unless those highly compensated employee restrictions kick in, you’re eligible to contribute as much as $20,500 in 2022 if you’re under age 50, or as much as $27,000 if you’re at least 50. Between the higher contribution limits, less tight restrictions on who can contribute, and the automatic contributions through payroll deduction, 401(k) type plans can be a great way to save for retirement. Add an employer match to the picture, and they may well become the very first investment you should make.
Make 2022 the year you make the most of your IRA and 401(k)
IRA and 401(k) style plans offer powerful tax-deferred compounding, potential tax deductions for contributing, and/or potentially completely tax-free retirement income, depending on their type. Those powerful features are key reasons why Congress limits the amount you can contribute to your plans and when exactly you can contribute that money.
Recognize the windows you have available to you, and take advantage of them now. The sooner you get going, the faster you can put those plans’ features to work. And because once the contribution windows for 2022 are gone, they’ll be gone forever, it’s a great idea to get started on a plan now to get yours funded before those windows close. That way, you’ll maximize your chances of using them to their full advantage to boost your chances of building a comfortable retirement nest egg.
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