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2810 Fieldstream Drive North

Wilson, NC 27896

 

Phone: 252-237-4357

Fax: 252-243-2681

 

March/April 2023

Reduce 2022 Income Taxes with a Traditional IRA Contribution

Reduce 2022 Income Taxes with a Traditional IRA Contribution

The tax filing deadline is getting close, but you may still have an opportunity to reduce the amount of income tax you owe for last year. By opening or contributing to an existing traditional individual retirement account (IRA) before the April 18 tax filing deadline, you may be able to deduct the contribution amount on your 2022 income-tax return—and boost your retirement savings.


Max Out Your Plan Contributions
You may already be saving taxes if you contribute to your employer’s qualified retirement plan, such as a 401(k), 403(b), or 457 plan. The money you contribute is deducted from your paycheck—pretax, which reduces your taxable income. For 2022, the contribution limit for these plans was $20,500, (increasing to $22,500 for 2023). Savers ages 50 and older also were eligible to make a catch-up contribution of $6,500, ($7,500 in 2023). The deadline for employer plan contributions is December 31 each year.


A Look at the IRA Rules
If you meet the eligibility requirements, you can contribute $6,000 to your traditional IRA, (increasing to $6,500 for 2023), plus an additional $1,000 if you’re age 50 or older.


Contributions Are Limited
Participants who are eligible to contribute to an employer’s 401(k) plan can make deductible contributions to a traditional IRA if their modified adjusted gross income (MAGI) is below $78,000 for singles and $129,000 for married couples. If you (and your spouse, if married) aren’t covered by a plan at work, you can deduct the full amount of your IRA contribution on your tax return. If one spouse is covered by a plan at work, the ability to deduct contributions to a traditional IRA phases out with income between $204,000 and $214,000.


An Added Layer
IRAs may offer a broader range of investments than an employer-sponsored retirement plan. Your tax professional can help you determine if you’re eligible for this deduction and your financial professional can help you execute the contribution.


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