Personal Finance

Boost Your Retirement Savings for 2022

Max out retirement-account contributions

You have until December 31 to stash the maximum $19,500—or up to $26,000 if you’re 50 or older by the end of the year—in a 401(k) and until April 15, 2022, to contribute the maximum $6,000 (or $7,000 if you’re 50 or older) for 2021 to your IRA. Contributions to 401(k) accounts aren’t included in your taxable income. If you’re not eligible for a workplace retirement plan, or your income falls below specific thresholds, you can deduct contributions to a traditional IRA. In both cases, your contributions will lower your 2021 tax bill.

If you were self-employed or had a side hustle in 2021, you can save even more in a tax-advantaged account. As both employee and employer, for 2021, you can contribute up to $58,000 ($64,500 if you’re 50 or older) to a solo 401(k) plan, which is available to anyone with self-employment or freelance income. Your contributions can’t exceed your self-employment income for the year. You have until December 31 to make the employee share of your contribution and until April 15, 2022, to contribute as an employer.

Alternatively, you could contribute to a SEP IRA, which allows individuals to put away up to 20% of net self-employment earnings, with a $58,000 maximum. The deadline to both establish and fund a SEP IRA for the 2021 tax year is April 15, 2022.

Usually, withdrawing money from a traditional IRA before age 59½ results in a 10% penalty (the penalty also applies if you withdraw earnings early from a Roth IRA, but contributions can be withdrawn anytime without repercussions). The 2020 Coronavirus Aid, Relief and Economic Security (CARES) Act, however, permitted penalty-free withdrawals of up to $100,000 from an IRA or 401(k) in 2020 regardless of your age. You owe no federal income tax on the withdrawal if you put the money back into your account within three years of the date you received the distribution. (You may file an amended tax return to reclaim any tax you’ve already paid.) Consider repaying at least a chunk of the withdrawal amount this year. Or you can spread income tax on the distribution evenly over three years. If you took advantage of this provision, make sure that you account for the portion of tax you owe for 2021.  

Consider a Roth conversion

Especially if you think that your income tax rate will go up next year, you may want to convert your traditional IRA to a Roth IRA now. You’ll pay tax on the deductible traditional IRA contributions that you convert, but all withdrawals from the Roth are tax-free once you reach age 59½ and have owned the account for at least five years. Plus, you don’t have to take required minimum distributions from a Roth. For more on Roth conversions, see Kiplinger's Guide to Roth Conversions.

Don’t forget to take RMDs

Thanks to pandemic-related relief measures, retirees didn’t have to make their 2020 annual required minimum distributions from 401(k)s and traditional IRAs. But you’re back on the hook for 2021. If you were born on or after July 1, 1949, RMDs start at age 72, and you have until April 1 of the year after you turn 72 to take your first RMD; after that, yearly withdrawals are due by December 31. (Those born before July 1, 1949, had to take their first RMD at age 70½.) You can calculate the RMD for your IRAs at

Transfer IRA money to charity

If you’re 70½ or older, you can direct up to $100,000 each year from your IRA to an eligible charity through a qualified charitable distribution (QCD). The amount you transfer is excluded from your taxable income, and it counts toward all or part of your RMD for the year. For a QCD to be eligible as an RMD, you must make the QCD by your RMD deadline, which is usually December 31.

Note that changes in the law now allow those 70½ or older who have earned income to contribute to a traditional IRA. If you make tax-deductible contributions to an IRA at age 70½ or later, the tax-free amount of a subsequent QCD is reduced by the amount of the contributions.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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