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Opportunity until April 18 to fund IRAs
LEARN HOW YOUR PLANNED GIFT CAN HELP THE AMERICAN LEGION
Individuals with earned income may fund an IRA up to the 2022 limits on or before April 18, 2023. The 2022 funding amount may be the lesser of earned income or $6,000 ($7,000 if the individual is over 50). The regular IRA contribution amount increased to $6,500 in 2023.
A traditional IRA may be funded this year, but if you are covered by a company plan there are phase-out limits. A single person who is an active participant in a company retirement plan may contribute to the IRA if their income is less than $68,000. The ability to contribute is phased out between $68,000 and $78,000 for single individuals or heads of household. A married individual has a phase-out limit from $109,000 to $129,000. However, if the married individual is not an active participant but has a spouse who is an active participant in a qualified plan, the phase-out is from $204,000 to $214,000.
Roth IRAs may also be funded for the 2022 tax year with after-tax cash until Apr. 18. An individual also needs earned income to transfer $6,000 (or $7,000 if over 50) into a Roth IRA. The Roth IRA has additional benefits during 2023. Roth contributions may be withdrawn at any time without penalty. If you have taxable income, you may add to your Roth after reaching 73. Unlike the traditional IRA, a Roth IRA does not have required minimum distributions (RMDs) after 73. This "no RMD" rule will also be expanded to include Roth 401(k) accounts in 2024.
The Roth contribution is also limited for high-income individuals, regardless of participation in a company retirement plan. The Roth IRA phase-out for a single person is from $129,000 of adjusted gross income (AGI) to $144,000 of AGI. The married limit is from $204,000 to $214,000, provided you are filing jointly.
An IRA must be managed by an approved trustee or custodian. Many banks, savings and loans or credit unions are qualified to be IRA custodians. Most financial services firms, including insurance companies, also serve as IRA custodians.
If you contributed nondeductible amounts to a traditional IRA, you will need to track your basis. Your basis is generally your total nondeductible IRA contributions and any additional basis from plans you have rolled over into your IRA. If you make a nondeductible IRA contribution, you must file IRS Form 8606. This will help you track your IRA basis. IRS Publication 590-B is a worksheet that will help you calculate the amount of taxable and nontaxable distribution from this IRA.
The American Legion’s Planned Giving program is a way of establishing your legacy of support for the organization while providing for your current financial needs. Learn more about the process, and the variety of charitable programs you can benefit, at legion.org/plannedgiving. Clicking on “Learn more” will bring up an “E-newsletter” button, where you can sign up for regular information from Planned Giving.