It’s Not Too Late Too Boost Your Retirement Savings, Reduce Taxes

While the end of the year is the deadline for these retirement plans, you have more time to make a 2022 contribution to an IRA. (Vitalii Vodolazskyi/Shutterstock)

By Kelley R. Taylor From Kiplinger’s Personal Finance

Maxing out your retirement plan contributions can be an effective way to boost savings for retirement and potentially reduce your taxes.

With the end of the year fast approaching, along with the 401(k) contribution deadline, here are some reminders to help you take advantage of tax breaks associated with your retirement savings plan—including making your 2022 maximum 401(k) contributions.

The deadline to make contributions for an employer-sponsored 401(k) plan for 2022 is Dec. 31. The contribution limit for 2022 is $20,500. If you are 50 and older, you can contribute an additional $6,500 catch-up contribution. In that case, your total max 401(k) contribution for the 2022 tax year would be $27,000.

The 401(k) contribution deadline and limits also apply to Roth 401(k) and to 403(b) retirement plans. (Some 457 plans allow larger catch up contributions in the three years before the normal retirement age for the plan.)

While the end of the year is the deadline for these retirement plans, you have more time to make a 2022 contribution to an IRA. You can contribute to a traditional or Roth IRA up until the 2022 tax year filing deadline, which is April 18, 2023. The IRA contribution limit is $6,000 and the $1,000 catch-up contribution for those 50 or older takes the total maximum contribution to $7,000.

Contributions to a Solo 401(k)

Self-employed individuals can make contributions to a Solo 401(k) as both an employee and employer.

If you contribute to your Solo 401(k) as an employee, you can contribute up to $20,500 for 2022. The total Solo 401(k) contribution limit, if you’re 50 or older, is $27,000.

Contributions to a Solo 401(k) made as an employer are generally limited to 25 percent of compensation, according to the IRS. If you’re self-employed, your total contributions can’t exceed your earned income for the 2022 tax year.

There’s also an overall contribution limit of $61,000 for 2022. So, total contributions to a participant’s account (not including catch-up contributions for those 50 and older), cannot exceed that amount.

A Tax Credit for Savers

Depending on your income, you may qualify for the Saver’s Credit, which is a tax break designed to encourage lower-and middle-income taxpayers to save for retirement.

For 2022, if your modified adjusted gross income is $34,000 or less, you may be eligible to claim a Saver’s Credit worth up to $1,000. If you’re married filing jointly, your modified adjusted gross income must be $68,000 or less, to claim a credit of up to $2,000.

The saver’s credit is based on a percentage (i.e., 10 percent, 20 percent or 50 percent) of the first $2,000 (single filers) or $4,000 (married filing jointly) that you contribute to your 401(k), IRA, or Roth IRA. Rollover contributions don’t count toward the Saver’s Credit.

(Kelley R. Taylor is tax editor at Kiplinger.com. For more on this and similar money topics, visit Kiplinger.com.)

©2022 The Kiplinger Washington Editors, Inc. Distributed by Tribune Content Agency, LLC.

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