While 2021 is in the past and the 2022 tax season is now upon us, you still have the option of making contributions to your IRA accounts for the previous year.

By doing so, you will be able to progress towards your retirement goals and reduce your taxable income on your 2021 tax return. However, the deadline to take advantage of this is April 15, 2022, even if this year’s taxes are due by April 18.

Select details on how you can make 2021 contributions in time for your tax return this year, and what are the tax advantages of a traditional IRA and a Roth IRA.

The contribution limit for traditional and Roth IRA accounts is $6,000 for 2021 and 2022 (or $7,000 if you’re at least 50). However, both types of accounts offer the ability to deposit money toward the previous year’s contribution limit, giving Americans more options to fill their retirement accounts if they can’t contribute on time. . So if you’re behind on last year’s contributions, you have about two months to fill up your IRAs as much as possible to qualify for tax breaks.

Here’s how:

Open your brokerage platform and find where you can contribute to your IRA. You will be able to choose whether you wish to contribute for 2021 or 2022. In this case, you will have to choose 2021 since you will have until April 2023 to contribute for the 2022 tax year.

This is what my Roth IRA account looks like through Vanguard when I try to purchase an index fund in my account. In this case, my 2021 box is gray because I have made the maximum contributions to this account for 2021. Note that each brokerage’s platform will be different.

Both a traditional IRA and a Roth IRA offer tax advantages to help you reduce your taxable income. Here’s what you need to know about each:

Traditional IRA: The contributions you make today are made before tax, which means you defer paying tax on part of your income until you withdraw the money. Because you’re depositing money before tax, you’ll get a tax deduction today. However, when you decide to withdraw the money (ideally in retirement), you will pay ordinary income tax. Be aware that although you can contribute to both a 401(k) and a traditional IRA, you may not be eligible for a tax deduction for IRA contributions.

Roth IRA: The contributions you make today to a Roth IRA are after-tax, meaning you’ve already paid taxes on the money you deposit. However, once you’ve owned the account for five years and one of the life events below occurs, you can withdraw all funds (including winnings) tax-free:

• You are at least 59.5 years old
• Are permanently deactivated
• Use the money (up to a lifetime maximum of $10,000) towards the purchase of a first home.

And the best part of a Traditional or Roth IRA is the fact that your money can accumulate over time.

For example, if you deposit $6,000 a year into a traditional IRA account, you’re reducing your taxable income now, and at a moderate average annual return of 7% over 30 years, you’ll have just over $600,000 waiting to be spent. retirement. You will have paid $180,000 in contributions, but realized gains of $420,000. In a traditional IRA, you’ll pay taxes on that money when you retire, but with a Roth IRA, you won’t be taxed on any of those withdrawals.

So if you decide to contribute to a traditional IRA, be sure to claim your contributions when you file your taxes with a service like TurboTax or H&R Block. These tax programs can help you maximize deductions (including investment-related deductions) and increase your refund.

The 2022 tax filing deadline for most people is April 18, just two months away. However, be sure to deposit as much as possible into your IRA accounts before the April 15 deadline for 2021 contributions arrives. Because every dollar you contribute now means you’re getting closer to a dollar of a comfortable retreat.

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