Brace Yourself for 2022 Contributions (And Watch for Those Last-Minute Prior-Year Contributions)
By Alayna Drope, CIS, CIP, CHSP
In addition to a busy reporting season, the first few months of each year usually bring an increased number of contributions for individual retirement arrangements (IRAs) and health savings accounts (HSAs). You should expect a bump in both 2022 and 2021 contributions, especially once your clients have prepared their 2021 income tax returns.
Eligible individuals have until their federal income tax return due date to make prior-year contributions. For 2021, that deadline is generally April 18, 2022, due to Emancipation Day being celebrated on April 15, 2022. For those taxpayers who live in Maine or Massachusetts, the deadline is April 19, 2022, because of the Patriot’s Day holiday.
During this flurry of contribution activity, it’s important to make sure that your clients clearly designate the year that a contribution is for. According to IRS Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs), contributions made between January 1 and the tax return deadline should be allocated to a specific year—the current year or the prior year. Without direction, the contribution will be assumed to be for the current year and reported as such. Proposed Treasury Regulation 1.219-1(d)(2) also requires individuals to irrevocably specify in writing the tax year that a prior-year contribution is for.
Because your clients can contribute for two tax years during this time, expect to get questions on both 2021 and 2022 eligibility limitations and contribution limits. While you should advise your clients to see a competent tax advisor for any specific tax-related questions, you may be able to answer more basic questions. Use these charts below as a quick reference to the 2021 and 2022 contribution and eligibility limits.
Traditional and Roth IRA Contribution Limits
An eligible individual may contribute 100 percent of his or his spouse’s eligible compensation (generally earned income) up to the statutory maximum amount per year. Individuals who are age 50 or older may also contribute an additional amount known as a catch-up contribution. This contribution limit applies to an individual’s Traditional and Roth IRAs in aggregate.
Roth IRA Eligibility and Traditional IRA Deductibility
An individual’s eligibility to contribute to a Roth IRA depends on his tax filing status and modified adjusted gross income (MAGI). If his MAGI exceeds certain amounts, he may be eligible for a smaller Roth IRA contribution, or he might not be eligible for any contribution.
If an individual (or spouse) is an active participant in an employer-sponsored retirement plan, Traditional IRA deductibility depends on the individual’s tax filing status and MAGI. If active participation is not an issue, the individual’s Traditional IRA contribution is fully deductible. See the following table for details.
Roth IRA Contribution MAGI Phase-Out Ranges
Traditional IRA Deductibility MAGI Phase-Out Ranges
For other IRA and employer-sponsored retirement plan limitations, see 2022 Retirement Savings Limitations Released.
HSA Contribution and HDHP Limits
The statutory annual contribution limit for HSAs depends on whether the HSA owner has a self-only or a family high deductible health plan (HDHP). Like IRAs, the annual limit includes contributions made to all HSAs owned by the individual in aggregate.
HSA-compatible HDHPs are defined by certain minimum deductible amounts and maximum out-of-pocket expense amounts. If a health plan does not meet these limits, the covered individual will not be eligible for HSA contributions.
Your financial organization is not responsible for determining the amount that a client is eligible to contribute. Your organization may not, however, accept regular contributions that exceed the maximum family contribution amount. Your organization should track each HSA owner’s age to determine their eligibility to make a catch-up contribution. Individuals who are age 55 or older may make an additional $1,000 catch-up contribution.
For information about IRA contributions, refer individuals to IRS Publication 590-A, Contributions to Individual Retirement Arrangements, and to IRS Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans, for more information on HSA contributions.
