Tax Extension IRA – Extending Your Taxes, and Your IRA Contribution?
Tax Extension IRA: Extending Your Taxes, and Your IRA Contribution?
IRAs are one method you may use to lower your taxable income while saving for your retirement. You are also able to contribute to your IRA in the previous year, up to the tax deadline. So, for example, if you were filing your 2021 taxes you could have contributed to your IRA in February of 2022 and used it for your 2021 taxes.
There are scenarios where you may need to extend your tax filing beyond the IRS deadline. What happens with your IRA contributions if you need to extend your taxes – are your contributions also extended?
Extensions for Traditional and ROTH IRA Contributions
That answer depends on the type of IRA contribution that you’re making. Typical IRA contribution deadlines for the prior tax year must be completed by the income tax filing date, regardless of if you’ve filed an extension or not. This is true for traditional IRA and ROTH IRA contributions.
Tax Filing Extension SEP IRA Contribution
However, if your IRA is a SEP IRA or a simplified employee pension IRA, then it works a bit differently. For a SEP IRA, you can continue to contribute beyond the tax filing date set by the IRS, up to the extension date. If you have filed for a six-month extension, you’d have until October 15th in a typical year to complete that contribution in a SEP IRA.
Military IRA Contribution Exceptions
There are also exceptions for members of the military when making prior-year IRA contributions. If you’re a military member and you’ve served in a combat zone the IRS provides you with an automatic extension for your IRA contributions. That automatic extension allows for 180 days beyond the last day you’ve served in a combat zone, the last day you serve in a contingency operation, or the last day of any continuous qualified hospitalization from an injury due to service from either of those scenarios.
IRA Extensions to Keep in Mind
When you’re filing an IRA contribution in a special circumstance beyond the normal timeframe, such as with the military exception or a SEP IRA, it’s a good idea to check with your financial institution or bank to ensure they are aware of which tax year the contribution is for. If you’re writing a check, write the year of the tax year for the contribution in the memo section for recordkeeping. You may also need additional documentation from the bank or financial institution regarding the contribution as it is a scenario outside of the norm.
IRA Contribution Limits
How much can you contribute for a prior tax year? For 2021 and 2022, the contribution limit (for traditional IRAs or ROTH IRAs) is $6,000. However, if you’re over the age of 50 you are eligible to make catch-up contributions of another $1,000 per year, for a total of $7,000. There is a caveat though – if you didn’t make the full contribution amount in wages or earnings, you can only contribute up to the amount that you’ve made in eligible compensation.
SEP IRA Contribution Limits
If you have a SEP IRA, as mentioned above with the special exceptions, the contribution amount is different. Contributions for a SEP IRA can’t be higher than 25% of your compensation for the year, or $61,000 in 2022. The higher contribution limits are a draw for many people who prefer a SEP to a traditional IRA.
Tax Strategies Beyond Tax Extension IRA Contributions
IRAs are just one method of saving for retirement while lowering your taxable income. To discover additional tax strategies, work with both a tax expert and financial planner to get a holistic overview of your financial picture and plan for your future.
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