THE IRA WAS FIRST introduced in 1974 as a way for those without employer pension plans to save for retirement. Today, individual retirement accounts come in two flavors: traditional and Roth. With a traditional IRA, you may get an initial tax deduction, but withdrawals are taxed as ordinary income. With a Roth, there’s no upfront tax deduction, but all withdrawals in retirement can be tax-free.
You can contribute up to $6,000 in 2022 to all IRAs combined, and as much as $6,500 in 2023, provided you have at least that much in earned income. (Investment income doesn’t count.) If you’re age 50 or older, you can make an additional catch-up contribution of $1,000, for a total of $7,000 in 2022 and $7,500 in 2023. You have until mid-April 2023 to make your 2022 contribution.
If you stash those dollars in a traditional IRA, you can always deduct your contribution if you aren’t covered by an employer’s retirement plan. What if you or your spouse has a retirement plan at work? You’ll need to check the income limits.
To fund a Roth, it doesn’t matter whether you’re covered by a workplace retirement plan. Instead, all that matters is whether you meet the income thresholds for that tax year.
If you’re lucky enough to qualify for both a traditional and Roth IRA, you should weigh the choice carefully. What if you qualify for neither? You can always fund a nondeductible IRA. That may sound like a drab consolation prize—but it could open the door to a Roth conversion.
Finally, don’t forget about your spouse. Even if your husband or wife has no earned income, he or she may still qualify for a so-called spousal IRA.
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