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Take Credit for Your Retirement Contributions
If you would rather spend your weekends researching travel destinations than IRA options, you aren't alone. According to research, most people spend more time planning where to go on vacation or which car to purchase, than they do retirement planning. Saving for retirement can be a challenge for many households in America, especially while balancing other responsibilities. Why should this be a priority? Retirement contributions are a future source of income, and contributing to these plans can often give you tax benefits now!
You can't predict the future, but there are things you can do today to prepare. Retirement plans and rules governing contributions remain the same under the recent tax reform, allowing you to continue to contribute and ultimately reap the benefits. The 2022 contribution limits are:
The portion of an employee's pay they can elect to transfer from their pay to their employer's 401(k) plan is $20,500 in 2022. Employees age 50 or older may contribute up to an additional $6,500 for a total of $27,000.
Roth IRA Income Limits
The IRA contribution limit remained at $6,000 in 2022, the catch-up contribution for people 50 or older stayed at $1,000. If you turn 50 in or after 2022, you can make the full $7,000 contribution any time after; you don't need to wait until your birthday.
Traditional IRA Deduction Limits
The income limit for a full deduction for your contribution to a traditional IRA, while participating in a workplace retirement plan, is $68,000 for singles in 2022. Taxpayers who are Married Filing Jointly maximum income limits to deduct the full contribution is $109,000 in 2022. Remember, the deduction is phased out when your income goes above $78,000 for singles; $129,000 for Married Filing Jointly.
These contributions are a way to boost your retirement savings while decreasing your taxes now and you may be able to take advantage of a special tax incentives like the Saver’s Credit (also known as the Retirement Savings Contribution Credit). If you don't know about the tax credit for retirement savers, it could be costing you money. "The Saver's Credit is unique," says Mark Steber, Chief Tax Officer of Jackson Hewitt. "You can get the income deduction and claim the credit on the same dollars. One of the few special takes breaks available."
A credit is different than a tax deduction it is a dollar-for-dollar deduction of your taxes. You may qualify for the credit if your income falls within the guidelines: $34,000 for Single and Married Filing Separately, $51,000 for Head of Household, and $68,000 for Married Filing Jointly.
As we approach the tax-filing season for the 2022 tax year, this is a perfect time to make sure you’ve taken advantage of every last-minute tax benefit for your retirement savings, and to start thinking about some simple ways to boost retirement savings and lower your overall tax liability. One benefit of tax-planning is reducing your taxable income. By maxing out your retirement contributions, you’re preparing a more secure future for yourself while minimizing the taxes you may owe. The Saver's Credit is literally free money that the government is willing to give you in exchange for putting money away for retirement; the money you contribute is tax-deferred AND you get a tax credit for doing so, creating the ultimate win-win situation.
At Jackson Hewitt, our goal is to save money and get you more. If there’s an opportunity, we want you to take the dough for the largest refund possible!
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