How to get a tax break for individual retirement account contributions

There’s still time to make pretax individual retirement account contributions for 2022 — and maybe cut your tax bill or increase your refund — if you qualify.

For 2022, the IRA contribution limit is $6,000, with an additional $1,000 for investors age 50 and older, and this year’s tax deadline is April 18 for most Americans.

You can make a 2022 IRA contribution through the April tax deadline in 2023, as long as you determine the deposit for the 2022 tax year. But you need to know the IRA deductibility rules before making the contribution, say experts.

“The deductibility rules for pretax IRA contributions can be confusing,” says certified financial planner Kevin Brady, vice president at Wealthspire Advisors in New York.

That’s because eligibility depends on three factors: filing status, adjusted gross income and workplace pension plan participation, he said.

Eligibility is easiest for married couples filing jointly when the spouse does not participate in a workplace retirement plan, according to Julie Hall, CFP at Vision Capital Partners in Ann Arbor, Michigan.

“They can deduct it and it doesn’t matter what their income is,” which may appeal to people with higher incomes, he said.

However, it becomes more complicated if one partner has retirement plan coverage at work and participates in the plan. “Participation” may include employee contributions, company matches, profit sharing or other employer deposits.

Depending on your filing status and income, you may be able to deduct all, part or none of your IRA contributions.

“It’s important to know there are deductibility limits,” says Malcolm Ethridge, CFP and executive vice president of CIC Wealth in Rockville, Maryland. With a workplace plan, some or all of your contributions may not be deductible, depending on your income.

For 2022, single investors with workplace retirement plans may claim a tax deduction for all IRA contributions if their adjusted gross income is $68,000 or less.

Although there is a partial deduction before reaching $78,000, the tax break disappears after meeting that threshold.

Married couples who file can get the full benefit with income of $109,000 or less, and can get a partial tax deduction before they reach $129,000.

You can see the full IRS chart for 2022 on IRA deductions here.

“Even if you maximize the plan in your current company, your income is still low enough to make a tax deduction. [IRA] contribution,” Ethridge said.

Of course, just because you qualify for the deduction doesn’t mean you have to make pretax IRA contributions, Hall says.

Before making a deposit, investors should consider their investment goals, along with their current tax bracket and expected tax bracket in retirement, he said.

In addition, you may consider other retirement savings – and the tax consequences of withdrawal, such as capital gains, ordinary income tax or tax-free income.

“Yes, you can benefit from today’s cut,” Hall said. But you can choose for more tax variety by adding more to other account types, she said.