How to make a $28,000 Roth or Traditional IRA contribution

ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare.  We bring Case of the Week to you to highlight the most relevant topics affecting your business.  

A recent call with an advisor in Columbus, OH is representative of a common question involving IRA contributions. The advisor asked:  A colleague of mine said a 60-year-old couple who is a client of hers plans to make a $28,000 IRA contribution by April 18, 2022. How is that possible? Won’t that be after the deadline and over the limit? 

Highlights of Recommendations  

• A $28,000 IRA contribution by April 18, 2022, for the couple is possible, courtesy of a combination of several IRS rules covering  

1. carry-back and current year contributions,  

2. spousal contributions,  

3. catch-up contributions, and 

4. the Emancipation Day holiday in Washington D.C.  

• From January 1, 2021, to April 18, 2022¹, it is possible for a traditional or Roth IRA owner age 50 and over to make a $14,000 contribution:  $7,000 (with catch-up) as a 2021 carry-back contribution and $7,000 (with catch-up) as a 2022 current-year contribution. That means a married couple filing a joint tax return could potentially make a $28,000 IRA contribution, with $14,000 going to each spouse’s respective IRA. 

• Why April 18, 2022?  By law, Washington, D.C. holidays impact tax deadlines for everyone in all states in the same way as federal holidays do. Because of the Emancipation Day holiday in the District of Columbia on Friday April 15^th, the IRS has moved the due date for 2021 personal tax returns to Monday April 18, 2022.  

• What about the Patriot’s Day holiday on April 18, 2022, in Maine and Massachusetts? The IRS has indicated that taxpayers in those states have until April 19, 2022, to file their returns considering the holiday. 

• When making the contributions it is important to clearly designate to the IRA administrator that a portion is a carry-back contribution for 2021 and a portion is a 2022 current-year contribution in order to avoid having the full amount treated as a current-year contribution and, subsequently, an excess contribution for 2022. 

• Such a large, combined contribution for the couple would only be possible if  

  • The couple had not previously made a 2021 contribution to a traditional or Roth IRA,  

  • Each spouse was age 50 or older as of 12/31/2021,  

  • The couple has earned income for 2021 and 2022 to support the contributions, and   

  • For a Roth IRA contribution, the couple’s income is under the modified adjusted gross income (MAGI) limits for Roth IRA contribution eligibility (see below).  

• Whether the traditional IRA contributions would be tax deductible depends upon “active participation” of either spouse in a workplace retirement plan² and the couple’s MAGI.  

• Please see the applicable MAGI ranges in the following chart. 

Conclusion 

The deadline for making 2021 traditional or Roth IRA contributions is April 18, 2022 (April 19, 2022), for residents of Maine and Massachusetts). That means there is a window of opportunity that allows eligible couples to double up their IRA contributions (for 2021 and for 2022) to the tune of $28,000.