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Retirement Hacks: Give yourself a richer retirement. Max out your IRA now.


During the holidays, your wallet may feel like it’s shrinking, but if you find yourself with extra cash or financial gifts this season, consider throwing it into your IRA. 

Retirement Tip of the Week: Figure in a way to add extra contributions to your IRA this year, or make a plan to max out this year’s IRA by the deadline next tax season. 

IRA contribution limits are not nearly as high as 401(k) or 403(b) limits, which could make it feel a bit easier to max out. In 2022, the contribution limit for IRAs was $6,000 for people under age 50, or $7,000 for those age 50 and older. This limit applies to both traditional and Roth IRAs. As a refresher, traditional IRAs are contributed with pretax dollars, while Roth accounts use after-tax dollars, and both require contributions to be made with earned dollars (such as from wages or self-employment income). 

Want more actionable tips for your retirement savings journey? Read MarketWatch’s ‘Retirement Hacks’ column

At the time of withdrawal, retirees pay taxes on the money they take out of a traditional account but don’t pay any taxes on their Roth distributions (if they follow all the rules, such as having the account open for five years before taking a withdrawal and after reaching age 59½ – here’s more on that and what the exceptions are for early distributions from the IRS). 

The choice between a traditional or Roth account is personal. Some advisers suggest people who expect to be in lower tax brackets in retirement should opt for a traditional account, since the money is contributed tax-free and they’d be paying less on taxes at distribution. For young or new workers, a Roth may be a better option, as they might be in a lower tax bracket now than when they’re retired, so they’re paying less in taxes now than they could potentially be in the future. Of course, no one knows for certain what tax bracket they’ll be in decades in the future, or how tax policies may change, but these are useful rules of thumb. 

See: 5 common IRA mistakes and how to fix them 

The deadline for IRA contributions for the current year is the tax deadline in the following year. For example, contributions to an IRA on behalf of the year 2022 can be filed until April 15, 2023. But taxpayers who make contributions for the prior year must tell the firm housing their accounts that the payment is intended for the year before, or it may assume workers want to contribute on behalf of the new year. So if you’re planning to wait on maxing out your 2022 IRA until the new year, be sure to tell your account provider that.

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