You are allowed to contribute up to $6,000 to an IRA in 2022 or $7,000 if you are 50 or older. This could greatly help you prepare for retirement, especially if invested for a few decades. But you’re unlikely to find a spare $6,000 hidden in your couch cushions.
If you want to maximize your IRA this year, you’ll need a plan. You have until April 2023 to make your 2022 contributions, but if you’re motivated, you can try these tips for maximizing your IRA much earlier — and a goal might be to do so before you need to file your 2021 tax returns in April 2022.
1. Create a plan
The first step is to establish a contribution schedule that works for you. First, write down all the IRA contributions you’ve already made for 2022. Subtract them from the annual contribution limit to determine how much you have left to save.
Next, decide how often you plan to contribute. This could be weekly, pay period, or monthly, depending on what works for you. The important thing is to have a schedule that you can stick to.
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Divide the total amount you need to contribute by the number of contributions you plan to make to determine how much you should set aside each time. For example, if you plan to contribute $6,000 to your IRA for 2022 by mid-April and contribute a little money each week, you’ll need to save $500 per week for 12 weeks.
Again, you are not required to make all of your 2022 IRA contributions by mid-April. You actually have until April 2023 to do so. But eliminating them early is smart if you can swing it. Your money will be invested longer, which can earn you more income.
2. Set up automatic contributions
Once you’ve chosen your contribution schedule, see if you can set up automatic contributions through your IRA provider. You may need to link your bank account to do this.
Automatic contributions free you from the responsibility of manually transferring funds. You can always adjust your schedule as needed over time, but this way you won’t have to worry about forgetting to make contributions in the first place.
3. Consider secondary agitation
If you’re struggling to contribute as much money as you want, consider adding a side business to your plan. This can help you generate additional income, which you can use for your retirement. There are virtually endless side business possibilities these days, so you should be able to find something that matches your skills and talents. And there are plenty of jobs you can do from home, too, if you’re worried about COVID-19.
You won’t have to worry about paying taxes on your income if you hide that money in a traditional IRA. Contributions to these accounts reduce your taxable income for the year, and then you pay taxes on your retirement withdrawals.
But if you decide to contribute to a Roth IRA, which is popular among those who think they’ll be in the same tax bracket or higher in retirement, you’ll need to budget some of your secondary income. for taxes. Your Roth IRA contributions do not reduce your taxable income this year, but you will benefit from tax-free withdrawals in retirement.
4. File your taxes early and invest your refund
Another way to get easy money for your IRA is to file your 2021 taxes as soon as possible. When you receive your refund, deposit it into your retirement account. The average tax refund in 2020 was $2,827, which could go a long way toward maximizing your IRA.
But even following these tips, it may not be possible to make all of your 2022 IRA contributions by April. And that’s okay. If that doesn’t seem feasible, you can set yourself a more reasonable goal, such as by the end of the summer or the end of the year. But the tips above still apply.
Create a plan, set up automatic contributions, and look for opportunities to increase your income along the way. If you do this, you should have a good chance of maximizing your IRA in 2022.
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