If you want to reduce your taxes for 2021 - it’s not too late!
There’s still time for you to deposit money into an IRA to boost your retirement savings, and if you’re eligible, you can receive a tax deduction.
The IRS allows taxpayers to make a prior-year IRA contribution, and the deadline is your federal tax return due date. While the tax return due date is generally April 15, the deadline to file your 2021 tax return is Monday, April 18, 2022, because of Emancipation Day in Washington, D.C. For taxpayers who live in Maine and Massachusetts, their deadline to file is April 19, 2022, because of Patriots’ Day.
It’s important to note that although taxpayers can request an extension to file their taxes, this extension doesn’t apply to IRA contribution deadlines. IRA contributions for the tax year must be made by the federal filing tax return deadline for that tax year.
The annual contribution limit for IRAs is $6,000 for 2021 and for 2022, with a $1,000 catch-up contribution allowed for individuals age 50 years or older. If you wish to contribute to your Traditional IRA, Roth IRA, or both, you can’t contribute more than the annual limit for all your IRAs combined. For example, if you have one Traditional IRA and one Roth IRA, you could make a deductible $4,000 contribution to your Traditional IRA and a $2,000 contribution to your Roth IRA.
Before Making a Prior-Year Contribution
If you want to make a prior-year contribution, be sure to let your financial organization know in writing so the contribution isn’t mistakenly made as a current-year contribution. The IRS requires you to sign paperwork or otherwise indicate to the financial organization that the contribution is for a prior year. Otherwise, if you don’t sign an authorization, such as a contribution form, your financial organization will report the contribution as a current-year contribution.
If you mail your IRA contribution, your contribution is timely made if the envelope is postmarked on or before the applicable deadline. Remember to write what tax year the contribution is for. If you make your IRA contribution online, you should indicate at the time of the contribution that it is a prior-year contribution. If there isn’t a way to make that indication, call or email your financial organization for assistance.
File Now, Fund later
You can file your tax returns and claim a Traditional IRA deduction before you’ve deposited the contribution if you fund the IRA by the deadline. This can be helpful to know if you cannot contribute at the time you file your taxes.
When you file your taxes, you’ll report your tax-deductible IRA contribution directly on Schedule 1 of Form 1040, U.S. Individual Income Tax Return, when you file your federal income tax return.
If you’re unsure whether you are eligible for a tax deduction for your IRA contribution, seek help from a competent tax advisor or use the IRS deductibility formula found in IRS Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs).