Catch-up IRA deposits

[dd9253]

I am 66 and underwithhold my taxes via my w-4. I own a home but still paid over $4k on 4/14 last year. Shoul I ddeposit a catchup to my IRA of about $10K to reduce this tax? What if I need to withdraw part of this next year?

[Joe_D-CPA-PFS-CFP]

Hi dd9253,

Thanks for the question. The question you ask is really a personal choice. It will take less cash to simply pay the tax. However, if your goal is to pay less tax and to not pay or reduce any associated estimated tax penalties, by all means make an IRA contribution.

If you are in a 12% marginal tax bracket, $10,000 in deductible IRAs will only save $1,200 (22% rate would save $2,200). You could make an estimated tax payment before 1/15/23 to help a little. I would urge to consider the following things:

• Do you have earned income of at least $10,000?
• Do you have the cash flow to tie up that much money?
• If you need the cash in 2023, a withdrawal will be taxable.

I hope this helps, please ask any additional questions you need.

[Opus 17]

You can't contribute more than $7000 to an IRA in 2022--$6000 general plus $1000 catch-up.

You also must have compensation from working, which you did not mention one way or the other.

A $7000 contribution will save probably $800-$1500 in income taxes.

If you are eligible to contribute to a qualified retirement plan at work (401k, 403b, etc) and you are not maxed out for the year, you might try and supersize your contributions for your last couple of paychecks, because that does not count agains your $7000 IRA contribution limit.

[Joe_D-CPA-PFS-CFP]

He can if he is married and has enough earned income and uses a spousal IRA. He didn't specify his filing status.