Want to contribute to your 2021 Roth IRA? We still have time

If you dropped your retirement goals last year, you still have time to catch up. The IRS will allow you to contribute to an Individual Retirement Account (IRA) until the tax filing deadline, and that includes the Roth IRA.

Before you jump in, though, make sure you’re qualified to make direct contributions to this type of account. You will have to pay an overcontribution penalty if you contribute too much.

Here’s what you need to know if you want to set aside money in a Roth IRA before the deadline. Most registrants will have until April 18 to get their last-minute contributions to the account.

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How a Roth IRA Works

Before throwing all your money into a Roth IRA, it’s important that you understand the rules. Roth IRAs let you invest after-tax dollars and watch the money grow tax-free. The icing on the cake is being able to withdraw earnings and dividends tax-free after reaching age 59.5 and signing the five-year rule.

Let’s say you’re building a million dollar Roth IRA portfolio. The IRS won’t demand a slice of the pie if you follow all the rules. You’ll be able to enjoy every penny of your $1 million jackpot, tax-free.

If you’re worried about your money being locked in forever, you shouldn’t be. The Roth IRA offers a bit more flexibility than other retirement accounts since you’ve paid your tax bill up front. You are allowed to withdraw 100% of your contributions at any time without incurring taxes or penalties. Make sure you don’t touch the winnings or you’ll set off the IRS alarm.

Review the 2021 contribution limits

If you want to maximize your Roth IRA potential, you should contribute as much as you can for each year you are eligible. For 2021, you can contribute up to $6,000 to your account if you are under age 50 and have earned income. Contribution limits are softer if you’re 50 or older: you can deposit up to $7,000 into your account for 2021.

Your modified adjusted gross income (MAGI) will determine the fate of your contributions. You can contribute the maximum amount to a Roth IRA if you’re single with an income below $125,000. This number goes up to $198,000 if you are married and filing jointly.

Your contribution power decreases when your income exceeds this amount. You will be able to make reduced contributions if your income is in the phase-out range. Once your income exceeds this upper limit, you will no longer be able to make direct contributions to the Roth IRA.

Here are the Roth IRA income phase-out ranges for 2021 and 2022.

Filing status

2022 income range

2021 income range

Single or head of household

$129,000 to $144,000

$125,000 to $140,000

Married filing jointly

$204,000 to $214,000

$198,000 to $208,000

Data source: IRS. Table by author.

Tackle 2021 and 2022

If you’re feeling ambitious, it’s not a bad idea to work on 2022 contributions after squaring 2021. The contribution limits are the same, but the income thresholds are a little broader. You can contribute to a Roth IRA for 2022 if your income is less than $129,000 if you’re single and $204,000 if you’re married and filing jointly.

By planning ahead, you may be able to double your dues this year. If you’re under 50, you can set aside a maximum of $12,000 if you contribute to both a 2021 and 2022 Roth IRA. You’ll have more funds to invest in assets that can boost your retirement savings. .

Don’t miss a good advantage

If you qualify to contribute to a 2021 Roth IRA, now is your chance to create a plan of action and get funds into the account. The countdown to getting your money in a 2021 Roth IRA is on, so you don’t want to put that off.

You should also assess your personal financial situation and see what works for you. Make sure your short-term financial obligations are covered before maximizing your retirement accounts.

If you’re not ready to dive into a Roth IRA in 2021, that’s no problem. You now know the rules and can start your 2022 Roth IRA. You will have until the tax filing deadline in April 2023 to load your 2022 Roth IRA, but don’t wait until the last minute if you can act now .

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