What is the deadline to make a tax deductible contribution to my retirement plan for the 2022 tax year? 12/31/22 or 4/15/23?

[emilylinders]

What is the deadline to make a tax deductible contribution to my retirement plan for the 2022 tax year? 12/31/22 or 4/15/23?

[MayaD]

You have until April 18, 2023 to make the contribution.

IRS.gov

The 401(k) contribution deadline is at the end of the calendar year.

[emilylinders]

Ok, great.  I just got a 1099 for $7k after I already filed my taxes, so I need to amend.  Can I contribute 7k to a Roth IRA to avoid paying the 2k in taxes I owe on this 7k of income?

 It's my first year as a 1099 contract employee and I'm just trying to avoid the time and energy of going through the tedium of itemized expenses to write off my self-employed income, and just do the one-off retirement contribution write-off to make my life simple and easy. Would this work?

[emilylinders]

Oh yes, and my income is under 50k total, including the 7k I need to add to my amended return. 

[DanaB27]

Contributions to a Roth IRA are not deductible and won't reduce your taxable income. But traditional IRA contributions may be tax-deductible (reduce your taxable income). But the deduction may be limited if you or your spouse is covered by a retirement plan at work and your income exceeds certain levels. Please see IRA deduction limits for details. 

Please wait until your refund or payment is processed before amending your return. Please see How to amend a tax return for instructions. To add your self-employment income:

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “self-employed” 
3. Click on “Jump to self-employed”

Please see What is the self-employment tax? and What self-employed expenses can I deduct? for additional information.

To add traditional IRA contributions:

1. Click on "Search" on the top right and type “IRA contributions” 
2. Click on “Jump to IRA contributions"
3. Select “traditional IRA”

Please see IRA Contribution Limits for additional information.

[Edited 3/20/2023 | 11:35 am PST]

@emilylinders

[dmertz]

Assuming that $7,000 of net profit from self-employment represents your only compensation for the year, your maximum permissible contribution to the Roth IRA (or to a traditional IRA) will be less than $7,000 because a portion of the $7,000 goes to the deductible portion of self-employment taxes.  The sum of the deductible portion of self employment taxes and the amount of your Roth IRA contribution is not permitted to exceed the net profit.

With exactly $7,000 of net profit and no other compensation, the deductible portion of self-employment taxes would be $495 and your maximum Roth IRA contribution would be $6,505.

[emilylinders]

Hi, this is confusing, because someone else just said you can’t write off Roth IRA contributions, only SEP IRA or trad IRA. Which person is right? 😂

$7k is the total amount I made from *self employment*.  I made under 50k as a W2 employee this year, and am not married. 

[emilylinders]

@dmertz What do you mean by “deductible portion of self employment taxes”? Turbo tax says I owe almost 2k in taxes on the 7k I made as a 1099 contract employee (Wilderness guide). Where does this $495 figure come from?

I thought contributions to IRAs are written off of taxable self employment income.  Is this incorrect? 

I’m basically trying to make the max contribution to an IRA so I don’t have to go through the tedium of sorting through all my receipts for Wilderness First Responder training, backpacking gear, meals and mileage to save $$ on taxes.  

This is my fundamental question: will opening a retirement account allow me to keep the 2k I owe in taxes on my self-employment income and invest it in my future? 

[emilylinders]

@DanaB27 Ok, so it looks like max deduction I can make is $6,500, as I’m under 50 and have no retirement plan from any other employer.

So in theory, if I made $7000 in self-employment wages and can write off $6500, then I’ll only have $500 in taxable self employment income, right?

Can you advise on the pros and cons of trad IRA versus SEP IRA?

[dmertz]

The deductible portion of self-employment taxes (Schedule 1 line 15) is one half of your self-employment taxes (Schedule 2 line 4).

If you are under age 50, your maximum regular traditional IRA contribution for 2022 is $6,000.  (Because you earlier asked about contributing $7,000 to an IRA, I assumed that you were over age 50 in 2022.)

You can contribute to both a SEP IRA and a regular traditional IRA.  With $7,000 of net profit, your maximum SEP IRA contribution would be 20% of $6,505 = $1,301.  A SEP-IRA contribution of $1,301 would reduce compensation available to contribute to an IRA to $5,204. (The sum of your SEP-IRA contribution, the regular IRA contribution and the deductible portion of self-employment taxes is not permitted to exceed your $7,000 of net profit from self-employment.)

Being in a relatively low tax bracket, you would likely get more long-term benefit from a Roth IRA contribution rather than a traditional IRA contribution.  Money in a Roth IRA will eventually be tax-free while the money in your traditional and SEP-IRAs would eventually be taxable.  With a Roth IRA contribution you don't get the tax deduction so you pay taxes now for a benefit of the gains in the Roth IRA being eventually tax-free instead of only tax-deferred.

[emilylinders]

Can I contribute to both a Roth IRA and a SEP or trad IRA in the same year? 

[dmertz]

Yes, you can make a SEP contribution and a regular traditional IRA contribution for the same year.  That's implied in the calculation I provided.

[Gootis]

Is April 16th still the deadline for and IRA contribution, or is it extended to October 16th with the Income tax extension?

[DoninGA]

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@Gootis wrote:

Is April 16th still the deadline for and IRA contribution, or is it extended to October 16th with the Income tax extension?

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If you live in one of the federally declared disaster areas your deadline to contribute to an IRA for tax year 2022 is October 16, 2023.

Go to this IRS website for information - https://www.irs.gov/newsroom/irs-may-15-tax-deadline-extended-to-oct-16-for-disaster-area-taxpayers-...

[DoninGA]

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@Gootis wrote:

Is April 16th still the deadline for and IRA contribution, or is it extended to October 16th with the Income tax extension?

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If you do not live in one of the federally declared disaster areas the deadline to contribute to an IRA for tax year 2022 was April 17, 2023.