With tax day here, you’ll have less time to receive additional tax credits while increasing your retirement savings.
You can reduce your taxable income for federal taxes in 2022 by making after-tax contributions to your Health Savings Account (HSA) or traditional Individual Retirement Account (IRA) by the April 18 tax deadline of this year. increase.
The second conclusion is that these contributions will help secure your financial future after retirement.
Heather Winston, product director for Retirement Income Solutions at Principal, told Yahoo Finance:
HSA Contribution Eligibility and Limitations
HSA is a hidden gem packed with tax benefits for workers on high deductible health insurance plans.
First, after-tax personal HSA contributions are tax deductible on your federal tax return. Also, you don’t need to itemize to get the deduction.
Second, using HSA money for eligible medical expenses is tax-free. Finally, when you invest HSA funds, your growth is also tax-free.
The maximum contribution an individual can make to the HSA for the 2022 tax year is $3,650, and these contributions can be made before the tax deadline. For families, the maximum amount is $7,300. These limits will be higher for the 2023 tax year.
HSA holders over the age of 50 can donate an additional $1000 under a “catch up” clause.
“You don’t have to sign up for the 1-year plan, but if you don’t sign up during 2022, the amount you can donate will be prorated,” Winston said. “This provision will be especially helpful for those who changed employment status in the middle of the year and did not choose a new health care plan.”
However, there are important exceptions to this rule that can have significant tax implications.
“With a single catch, you can donate the maximum amount you are eligible to contribute in a year. You must continue to register. Next year,” said Winston. “It’s important to be aware of these types of exceptions, otherwise the IRS will require excessive contributions and they will be subject to taxes and penalties.”
Winston recommends consulting a tax professional to determine full eligibility.
“Form 8889 is used for details such as determining HSA deductions and reporting contributions to (and distributions from) HSA,” Winston said.
IRA Contribution Eligibility and Limitations
A traditional retirement tool, the traditional IRA also has tax incentives. Contributions to these accounts are fully or partially deductible. You can deduct your contributions for the 2022 tax year as long as you make the contributions by the tax date.
Winston elaborated on the IRA contribution tax deduction.
“The deductibility of traditional IRA contributions depends on whether you or your spouse are not covered by your workplace retirement plan. If not, the full deduction is allowed,” said Winston. “This changes if you or your spouse are covered by your workplace retirement plan and your income exceeds a certain amount.”
The maximum individual contribution to the IRA for the 2022 tax year is $6,000. If the employee is over the age of 50, the cap is $7,000 for him. Winston said he needed income to make donations.
Of course, the 2022 tax year is time-sensitive. Employees can contact their employer or retirement plan provider for more information. In many cases, these donations can be made quickly and electronically.
But if you miss this year, there will definitely be next year.
“It’s never too late to contribute to the IRA and HSA,” says Winston.
Ella Vincent is a Personal Finance Reporter at Yahoo Finance. follow her on her twitter @bookgirlchicago.
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