It’s not too late! So go the lyrics of a 1992 song recorded by T-Bone Burnett. T-Bone could have been singing about making 2021 contributions to an Individual Retirement Arrangement (IRA). Even though 2021 is now in our rear view mirror, we are allowed to make 2021 contributions up to the filing date for our federal income tax. The Internal Revenue Service (IRS) recently announced that the filing date will be April 18, 2022. The date has been extended to May 16th for victims of December’s devastating tornadoes in Kentucky, Illinois, etc.
If you weren’t able to come up with the money to contribute to an IRA during calendar year 2021, you’re not out of luck. You can still contribute up to $6,000 ($7,000 if you’re 50 or older, including if you turned 50 in 2021). There are income based restrictions on: 1) deducting your contributions to a traditional IRA; and 2) contributing at all to a Roth IRA. However, anyone, regardless of income, can contribute to a traditional IRA with already taxed money.
Not only can you contribute to your 2021 IRA through April 18, 2022, you can contribute to your 2022 IRA beginning on January 1, 2022. The contribution limits remain at $6,000 ($7,000 if 50 or older) for 2022, though the income based restrictions have been adjusted slightly higher. Those who contribute to IRAs early in the year need to make sure that they identify to what year (i.e., 2021 or 2022) that the contribution is to be applied.
Contributions have to be made from earned income. You have to have enough earned income to cover the amount of the contribution. If you’re still working, that’ll be no problem. If you’re married and your spouse has no earned income, you can make a contribution for them out of your earned income. Don’t know what is considered earned income? Here’s how the IRS defines earned income in one of their FAQs:
“Earned income includes all income from employment, but only if it is includable in gross income. Examples of earned income are wages, salaries, tips, and other taxable employee compensation. Earned income also includes net earnings from self-employment. Earned income does not include amounts such as pensions and annuities, welfare benefits, unemployment compensation, worker’s compensation benefits, or Social Security benefits.”
If you act before April 18, 2022, you’ll find (as T-Bone sang) that it’s not too late for a 2021 contribution. But, if you don’t act in time, the song that you hear will be from Carole King who, in 1971, sang “It’s too late, baby”.