2021 may be long gone by now, but taxpayers still have the chance to save on their 2021 income taxes by contributing to a traditional IRA before the Tax Filing Deadline. Opening a Self-Directed IRA (SDIRA) and contributing could help you lower your taxes. This simple strategy is one of a few ways you can still pay taxes from last year, while making those contributions by April 18th, 2022.
How Can SDIRA an Save You Money?
Making contributions can help lower your taxes! For tax year 2021, you can contribute up to $6,000 to an SDIRA account with an additional $1,000 if you’re age 50 or older. Remember – you must have earned income to contribute to an IRA. If you meet certain requirements, which we will cover below, you’re allowed to deduct the full amount from your income. This means you will not owe taxes on the amount you put into your account.
If you and your spouse if filing jointly and do not have a retirement plan at work, you are able to claim a deduction on your tax return for the contributions you make to your traditional IRA. If you or your spouse do have a retirement plan at work, then your ability to deduct contributions will depend on your income and where it falls within the traditional IRA income limits. You can contribute to an IRA even if you have a retirement plan at work, though you may not be able to deduct the full amount of your contribution.
Understanding Deductibility
You’re eligible to claim a full tax deduction for your contributions to a traditional IRA if your income is under the limits, but if your income is higher than the limit, you are unable to deduct your IRA contributions. The good news is, if you’re income falls in the phase-out range you can deduct a portion of your contributions.
Other SDIRA Contributions
Another option for those that are married are spousal contributions. A spousal IRA allows a working spouse to contribute to an SDIRA on behalf of a non-working spouse who has little to no income, as long as the contributor has earned income. The rules work the same as a normal account, except that the contributor is able to make a contribution in the name of the non-working spouse.
You may also be eligible to receive a further tax benefit for contributions that you make to your SDIRA called the Saver’s Credit. The Saver’s Credit was created to provide a direct financial incentive for lower income workers to save for retirement. Saver’s Credit can reduce an individual’s tax bill by up to $1,000 if their income is below certain thresholds or up to $2,000 for taxpayers filing joint tax returns.
What is the Contribution Deadline?
For 2021 contributions, you have up until April 18th, 2022. If mailing in a contribution via check, as long as the postmark date is before the 18th, even if it arrives to your custodian after that date, it can still be applied. Always be sure to include the contribution year with your check when sending checks to your custodian, so the funds are applied to the proper year. If you’ve already filed your taxes for 2021 but haven’t made a contribution, don’t worry. With a little extra work, you can re-file your taxes, contribute to an SDIRA, and receive those tax savings.
If you have more questions about how to reduce your taxes by making a contribution, our team is happy to help. You can call an Accounts Receivable Representative or an IRA Specialist at 281-492-3434 or schedule a free consultation.