Still time to save on 2022 taxes
It is not too late to save for retirement and save on 2022 taxes.
If you haven’t filed your 2022 tax returns you can still contribute to your IRA or Roth IRA.
For the IRA you can contribute $6,000 or $7,000 if you are over 50. Your IRA is tax deductible. That means you reduce your taxable income, and the amount will grow tax free. You will have to pay taxes when you retire, but you most likely will be in a lower tax bracket. There are income limits for the tax deduction of $144,000 for single filed returns and $214,000 for married returns.
The ROTH IRA is an excellent option to save for retirement. You can contribute the same amounts as the IRA. ($6,000 or $7,000 if over 50). Although the ROTH IRA will not reduce your current taxes, you will be able to take out money tax free when you retire. A ROTH IRA is an excellent choice for younger wage earners that will be earning more in the future, and are currently in a lower tax bracket. The income limits apply to Roth IRA contributions also. For example, if you’re married filing jointly and your income is $214,000 or more, you are ineligible to contribute to a Roth IRA. For single taxpayers, having income of $144,000 or more disqualifies you from contributing.
Can you do both? Yes but you can only contribute the maximum amount between the two products.
If you have a 401K plan, it is too late to contribute for 2022, but not too late to start to plan for 2023. We advise clients to annually evaluate their 401K plans, the investments and their contributions. Some issues to consider include
What is your Employers 401k match?
Make sure you are saving at least as much as your Employer will match. For example if your employer will match a 3% contribution, you will want to make sure you contribute at least this much. Otherwise
Each year try to do more
A goal should be to save 10% of your salary. If you aren’t there- can you boost this by 1% or the amount of a recent raise?
Consider Options
Even though you are investing for retirement, and this has a longer time horizon, investments are not set it and forget it. Some plans do not automatically rebalance so you could find yourself taking unintended bets. Check the performance, the good news about your 401K is you can rebalance and switch funds without any tax consequences.
For more information on what you can save in 2023, check out the IRS website.