In IR–2022–52 the Internal Revenue Service reminded taxpayers to consider taking a deduction for a 2021 contribution to an Individual Retirement Account (IRA). The contribution may be made prior to filing your tax return on April 18, 2022.
IRAs are a popular savings plan. Individuals with earned income may contribute to a traditional IRA and qualify for a deduction on their 2021 tax return. Traditional IRA or Roth IRA contributions are subject to many rules and limits. IRA contributions may be reduced for individuals with higher incomes.
IRA Contribution Limits — The basic rule for an IRA contribution is a limit of $6,000 for individuals under age 50. Individuals age 50 or older are permitted to add $1,000 as a "catch–up" contribution, for a total amount of $7,000. The contribution limit is not affected by rollovers of existing IRAs.
IRA Deduction Limits If Covered — If you are covered by a retirement plan at work and your income is above specific limits, you may be limited in your IRA contribution amount. A single person may take a full IRA deduction with $66,000 or less of modified adjusted gross income (MAGI). The IRA contribution is phased out between $66,000 and $76,000 of MAGI. If you are married and filing jointly or you are a qualified widower, the MAGI limit is $105,000 and the IRA is phased out over the next $20,000. Married couples filing separately have a limit of $10,000 of MAGI.
IRA Deduction Limits If Not Covered — If you do not have a retirement plan at work, there are higher limits. A single person or married person filing jointly whose spouse is not covered by a retirement plan may contribute any amount to an IRA even if he or she has a high income. If you are married to a spouse who is covered by a plan at work, the MAGI limit is $198,000 and the IRA deduction is phased out over the next $10,000. If you are married and filing separately with a spouse who is covered, the MAGI limit is $10,000.
Roth IRA Contribution Limits — If you are married and filing jointly or you are a qualifying widower and desire to make an after–tax Roth IRA contribution, you may do so if your MAGI is less than $198,000. The Roth IRA contribution is phased out over the next $10,000. If you are single or head of household, your Roth contribution limit is $125,000 and the amount is phased out over the next $15,000. If you are married filing separately, the MAGI limit is $10,000.
IRA Contributions After Age 70½ — For tax year 2021, there is no longer an age limit on contributions to traditional IRAs. You may contribute to a Roth or traditional IRA if you have earned income.
Spousal IRAs — If you file a joint return and your spouse has earned income, you are qualified to contribute to an IRA even if you did not have income. The limit for both spouses is the $6,000 or $7,000 contribution per spouse (depending upon age), but may not exceed your total earned income.
Tax on Excess IRA Contributions — If you contribute more than your qualified IRA amount, there is a 6% tax each year on the excess amounts in your IRA. To avoid a 6% tax on the excess contribution, you should withdraw that amount by April 18, 2022.