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How much can you contribute to your IRA in 2022 and 2023?




One of the surest ways to grow your nest is to take advantage of the special tax breaks offered by the Internal Revenue Service (IRS). This explains the popularity Individual retirement accounts (IRAs), which have become one of the cornerstones of retirement planning in the United States.

To get the most out of an IRA, be it traditionalists or dung Miscellaneous, you’ll need to understand how these accounts work in general and their annual contribution limits in particular.

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  • For the 2022 tax year, individuals can set aside up to $6,000 per year. People age 50 or older can save an additional $1,000.
  • For the 2023 tax year, the maximum contribution increases to $6,500 per year. The Compensation Contribution for persons aged 50 and over remains at $1,000.
  • Annual contribution limits apply to all taxpayer retirement accounts. The collective total contributed over the course of the year cannot exceed limits.
  • High income earners are not eligible to use a Roth account or have limited access to it depending on income.

How do traditional IRAs work?

Like employer sponsored 401(k)sTraditional IRAs can significantly reduce the amount of income you have to pay the federal government. Investors generally contribute pre-tax dollars, and the balance grows on a Deferred taxes basis until retirement. Withdrawals after age 59½ are then subject to ordinary income taxes at the rates in your current tax bracket.

Be aware, however, that there are limits on how much you can contribute. It’s also worth keeping in mind that the two most popular types of this savings vehicle — traditional IRAs and Roth IRAs — have different rules.

IRA contribution limits

For the 2022 tax year, the standard contribution limit for both traditional Roth IRAs is $6,000. If you are 50 or older, the IRS provides a file Right A feature that allows you to contribute an additional $1,000 each year for a total of $7,000.

For the 2023 tax year, the maximum contribution increases to $6,500 per year. The remaining “compensation contribution” is $1,000.

If you’re rolling another retirement plan into an IRA, annual contribution limits don’t apply.

This may not seem like a lot of money, but it is enough to have a significant impact on the overall performance of your savings over a long period of time.

For example, let’s take a 30-year-old who contributes the full $6,000 each year until retirement. assuming 7% annual return, the account will have a balance of $887,481 when the investor reaches the age of 65, not including any compensation contributions made by the person. After taxes – assuming a 22% tax rate in retirement – that’s still $692,235 in purchasing power.

And don’t forget that contribution limits are adjusted for inflation every year.

The chart below shows how IRA tax benefits can have a significant impact on savings over several decades.

Let’s say the pension saver effective tax rate Right now, while they earn a steady income, it’s 24%. Had they put the same portion of every paycheck into a taxable savings account, it would have been worth a lot less. why? Because the annual tax deduction gives savings for retirement more purchasing power.

Let’s say, after taxes, that our 30-year-old son could only put $4,560 into a standard savings account. If the money was put into an IRA instead, it would reduce the tax bill, allowing the account holder to put up an additional 24%, or $1,440. Over time, this causes the nest egg to increase significantly in size.

How employer-sponsored plans affect IRAs

Although anyone can contribute up to $6,000 (or $7,000 USD) Individuals age 50 and over) to a traditional IRA, not everyone can deduct the entire amount on their tax return. If you or your spouse participate in a retirement plan at work, you are subject to certain restrictions based on your retirement age adjusted adjusted gross income (MAGI).

For the 2022 tax year, if you are single and making more than $68,000 and less than $78,000 per year, you’re only allowed a partial deduction for IRA contributions. For married couples filing jointly, if the spouse making an IRA contribution is covered by a workplace retirement plan, the phase-out range is $109,000 to $129,000

For the 2023 tax year, the phase-out range for single people has increased to between $73,000 and $83,000. For married couples filing jointly, if the spouse making an IRA contribution is covered by a workplace retirement plan, the phase-out range increases to between $116,000 and $136,000.

Common types of employer retirement plans include:

Different rules for Roth IRAs

When setting up an IRA, most investors Two options: the original, or “traditional,” version of these savings accounts, dating back to the 1970s, and the Roth variety, introduced in the 1990s.

The main difference between them lies in the tax treatment:

A traditional IRA account owner does not owe income taxes on the money deposited into the account immediately. This money is protected from taxes until the person retires and begins withdrawing the money.

A Roth account owner pays income taxes on the funds before they are paid. But when withdrawals are done properly, there are no other taxes due on the principal or the interest he earns.

Contribution limits are the same for both account types.

Income limits for Roth eligibility

The government places restrictions on who can contribute to a Roth, essentially limiting or eliminating its use by high-income earners.

To determine your eligibility, the IRS also uses adjusted gross income (MAGI) as a measure. Basically, this is your total gross income minus some expenses that not everyone can afford.

For the 2022 tax year, single filers with MAGI of more than $144,000 in a year and joint filers who brought in more than $214,000 in Roth IRA contributions were completely excluded. For the 2023 tax year, single filers with MAGI more than $153,000 per year and joint filers who brought in more than $228,000 in Roth IRA contributions were completely excluded.

There is another area where Roth IRAs differ from traditional IRAs. If you have a traditional IRA, you should start taking it Required Minimum Distributions (RMDs) from your account starting at age 72. The RMD age used to be 70 but was raised to 72 after the passage of the Every Community Retirement Improvement Preparation Act (SECURE). You can keep your Roth money forever, if you wish.

How to contribute to an IRA

You can contribute to any type of IRA as early as January 1 or as late as the tax year filing deadline of mid-April each year. It’s up to you whether you make one big contribution or make periodic contributions throughout the year.

If you have the money, it may make financial sense to make the full contribution at the beginning of the year. This gives your money the most time to grow.

If you can’t get that kind of cash in one go, you can set up a schedule that works for you. It’s easy to set up automated payments that transfer money from your bank account to your IRA on a regular schedule. This could be every two weeks (when you get paid) or once a month.

Setting up periodic contributions makes that $6,000 more manageable. It has another benefit, too: You cost an average dollar of your investment.

Dollar cost average for IRAs

Dollar cost averaging is a strategy that requires the investor to invest the same amount of money in the same asset over time rather than a lump sum. If the price of an asset is volatile, as in the case of stocks, this means buying the same asset at its highs and lows. Over time, the results are likely to be better than investing the lump sum.

The strategy is ideal for IRA contributions. You can allocate a certain monthly amount to your retirement account and have it deducted automatically. You invest this money in mutual funds or stocks, but you get more or less shares depending on the current market price.

You end up investing in assets that average their price over the course of the year. Hence the term dollar cost average.

If you are risk averse, handing out your money is a good idea. Invest in a mix of conservative and bold funds. This lowers the average cost basis of your total investment – and thus, your break-even point. The approach is known as downward averaging.

Here is an example. Let’s say you have $500 to invest in a mutual fund each month. In the first month, the price was $50 per share, so you end up with 10 shares. The next month, the fund’s price drops to $25 per share, so $500 buys 20 shares. Two months later, you had purchased 30 shares at an average cost of $33.33.

Using dollar cost averaging, you only need to commit $500 per month to reach the annual limit, or $250 every two weeks if you invest on a paycheck-to-pay basis.

How much should you contribute to an IRA?

That’s a good question. It’s tempting to say that you should fund it up to your maximum allowable each year — or at least up to your deductible if you’re using the traditional type.

While it would be nice to introduce a strong and quick character, the realistic answer is a bit more complicated. Much depends on your income, needs, expenses and obligations.

Since long-term saving is so commendable, most financial advisors recommend that you settle your debt first, if at all possible — unless it’s a “good” debt, such as a mortgage that leads to building equity in your home. But if you have a bunch of outstanding credit card balances, paying them off should be your top priority.

A lot also depends on how much money you think you’ll need or want in retirement, and how long you have before you get there. There are a number of ways to find out This golden sum.

But it might make more sense to come up with a perfect number and then work backwards to calculate how much you should contribute to your accounts. This means knowing average rates of return, investment time frame and your risk capacity.

Find out what other types of retirement savings vehicles are available to you, too — such as an employer-sponsored 401(k) or 403(b). It’s often best to fund it first to the fullest, especially if your company is generous Matches employee contributions.

After you have your maximum employer match, you can then deposit additional amounts into a Roth IRA or traditional IRA, although the contributions Uncut.

If your workplace plan has few, no, or poor investment options, make your IRA the primary nest of your retirement funds. That’s easy open an account At a brokerage firm, mutual fund firm, or bank, for example.

In addition to mutual funds and exchange-traded funds (ETFs), many IRAs allow you to choose stocks, bonds, and other investments as well.

Can you contribute the same amount to a Roth IRA as to a traditional IRA?

yes. The contribution limit for both types of IRAs is the same: For the 2022 tax year, single people can set aside up to $6,000 a year. People age 50 or older can save an additional $1,000. For the 2023 tax year, the maximum contribution increases to $6,500 per year. The Compensation Contribution for persons aged 50 and over remains at $1,000.

What is the deadline for making contributions to an IRA?

IRA contributions can be made up to the mid-April tax filing deadline of that year.

Contributions for 2022 can be submitted between January 1, 2022, and April 18, 2023. Contributions for 2023 can be submitted from January 1, 2023 through April 15, 2024.

Can you have an IRA and a 401(k) account?

You could have an IRA and a 401(k). The year limit is the maximum amount you can dispose of in both accounts.

bottom line

Learning the difference in the rules between contributing to a traditional vs. a Roth IRA pays off in the long run. Although there are no income restrictions for contributing to a traditional IRA, there are limits on how much of your contributions you can deduct from your taxable income. A Roth IRA is non-deductible—you prepay tax on your contributions, and then make tax-free withdrawals in retirement—but eligibility depends on income limits.

Whichever account best meets your individual situation, it’s always wise to allocate current income against your retirement years.

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Stock, bond and cryptocurrency investors remain on edge after a rough year for the markets





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Dow Jones losses are heading towards the closing bell as US stocks approach their worst year since 2008





US stocks were trimming losses heading towards the closing bell on Friday, but were still on track to post their worst annual loss since 2008, as the harvest of tax losses combined with concern over the outlook for US corporate and consumer earnings took its toll.

How are stock indices traded?
  • Dow Jones Industrial Average

    It fell about 182 points, or 0.6%, to 33,039 points.

  • S&P 500 index

    It fell nearly 26 points, or 0.7%, to about 3,824.

  • The Nasdaq Composite Index fell 72 points, or 0.7%, to about 10,406 points.

Stocks posted their biggest gains of the month on Thursday, with the Dow Jones rising 345 points, or 1.05%, to 33,221 as major stock indexes rebounded after losses incurred earlier in the week that pushed the Nasdaq Composite to a new closing low for the year. . The S&P 500 was on track on Friday to wrap up its fourth consecutive losing week, the longest streak of weekly losses since May, according to FactSet data.

What drives the markets

US stocks traded lower on Friday afternoon, on pace to close the last trading session of 2022 with weekly and monthly losses.

Stocks and bonds have been crushed this year as the Federal Reserve raised its benchmark interest rate more aggressively than many expected, as it sought to crush the worst inflation in four decades. The S&P 500 is on track to end the year with a loss of nearly 20%, its worst annual performance since 2008.

“Investors were on edge,” Mark Heppenstahl, chief investment officer at Penn Mutual Asset Management, said in a phone interview Friday. “It seems as if being able to bring prices down might be a little easier given how bad the year has been.”

Stock indices have fallen in recent weeks as the recent rally inspired by hopes in the Fed’s policy focus faded in December after the central bank indicated it would likely wait until 2024 to cut interest rates.

On the last day of the trading year, the markets were also hit by selling to capture losses that could be written off from tax bills, a practice known as tax harvesting, according to Kim Forrest, chief investment officer at Bouquet Capital Partners. .

Forrest added that an uncertain outlook for 2023 has also weighed in, as investors worry about the strength of corporate earnings, the US economy and consumer as the fourth-quarter earnings season approaches early next year.

“I think the Fed, and then earnings in mid-January — they’ll set the tone for the next six months. Until then, it’s anyone’s guess.”

The US central bank has raised its benchmark interest rate by more than four percentage points since the start of the year, pushing borrowing costs to their highest levels since 2007.

The timing of the first Fed rate cut will likely have a significant impact on markets, according to Forrest, but the outlook remains uncertain, even as the Fed tries to signal that it plans to keep interest rates higher for longer.

On the economic data front, the Chicago PMI for December, the latest major data release for the year, Came stronger than expected. Climbing to 44.9 from 37.2 in the previous month. Readings below 50 indicate contraction.

In the coming year, Heppenstahl said, “we are likely to shift toward concerns about economic growth rather than inflation.” “I think the decline in growth will eventually lead to an even greater drop in inflation.”

Read: Stock market investors face 3 recession scenarios in 2023

Eric Sterner, chief information officer at Apollon Wealth Management, said in a phone interview on Friday that he expects the US to fall into a recession next year and that the stock market could see a new bottom as companies likely review their earnings. “I think the earnings outlook for 2023 is still very high,” he said.

The Dow Jones Industrial Average, S&P 500 and Nasdaq Composite were all on pace Friday afternoon posting weekly losses of around 1%, according to FactSet data, at last check. For the month, the Dow was down about 5%, the S&P 500 was down about 7% and the Nasdaq was about to crash down about 10%.

Read: Value stocks are outperforming growth stocks in 2022 by a large margin historically

As for bonds, Treasury yields rose on Friday as the US sovereign debt market was set to post its worst year since at least the 1970s.

The yield on the 10-year Treasury note

It rose about four basis points on Friday at 3.88%, according to FactSet data, in the latest check. Ten-year yields jumped about 2.34 percentage points this year through Thursday, on track for the biggest annual gain ever based on data going back to 1977, according to market data from Dow Jones.

Meanwhile, the yield on the two-year note

Up about 3.64 percentage points in 2022 through Thursday to 4.368%, 30-year return

It jumped 2.03 percentage points over the same period to 3.922%. That marks the largest increase in a calendar year for each based on data going back to 1973, according to market data from Dow Jones.

Outside the US, European stocks capped their biggest percentage drop in a calendar year since 2018, with the Stoxx Europe 600
And the
It is an index of euro-denominated stocks, down 12.9%, according to market data from Dow Jones.

Read: A downturn in the US stock market is trailing these international ETFs as 2022 draws to a close

Companies in focus

Steve Goldstein contributed to this article.

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Fed’s reverse repo facility reaches $2.554 trillion by Reuters





© Reuters. FILE PHOTO: The Federal Reserve Building in Washington, US, January 26, 2022. (Reuters)/Joshua Roberts/File Photo

Written by Michael S Derby

NEW YORK (Reuters) – A key facility used by the Federal Reserve to help control short-term interest rates saw record inflows on Friday, the last trading day of the year.

The New York Fed said its reverse repo facility took in $2.554 trillion in cash from money market funds and other eligible financial firms, beating the previous high seen on Sept. 30, when inflows totaled $2.426 trillion.

The cash rally was almost certainly tipping into record territory in the usual end-of-quarter pattern that could worsen further towards the end of the year. On those dates, for a variety of reasons, many financial firms prefer to deposit money in the central bank rather than in the private markets.

The Fed’s reverse repo facility has been very active for some time. After seeing almost no absorption for a long time, money began to gravitate toward the central bank in the spring of 2021 and then grew steadily. Daily reverse repo usage has been steadily above the $2 trillion mark since June.

The reverse repo facility takes cash from qualified financial firms in what is an actual loan from the Federal Reserve. The current rate is 4.3%, a yield that is often better than rates for short-term private sector lending.

The reverse repo facility is designed to provide a soft floor for short-term rates and the federal funds target rate, and is the Fed’s primary tool for achieving its function and inflationary mandates. To mark the higher end of the range, the Fed is also pushing deposit-taking banks to deposit cash at the central bank, where the interest rate on reserve balances is now 4.4%.

The federal funds rate is currently set between 4.25% and 4.5% and is trading at 4.33% as of Friday, sandwiched between the reverse repo rate and interest on reserve balances.

There are no signs of shrinkage

Even with the heavy use of reverse repo, Fed officials have always remained unconcerned about large outflows, even as some in financial markets worried about the potential for the Fed to drain the borrowing and lending lives of private money markets.

Fed officials also expected that as the central bank continues to raise interest rates with the goal of bringing down very high levels of inflation, the use of the reverse repo facility should decrease. But that hasn’t happened yet, and some in the markets now believe that the consistently high utilization of the Fed facility will be around for some time to come.

Research by the Federal Reserve Bank of New York indicated that banking regulation issues make demand for the Fed’s reverse repo instrument high. Meanwhile, the Kansas City Fed added its view that large inflows are related to limited private market investment opportunities and policy uncertainty.

Strong cash flows to the central bank may not have alarmed central banks, but they have driven their operations to an actual loss. The Federal Reserve finances itself through interest on the bonds it owns as well as the services it provides to the financial community. It usually makes a noticeable profit and by law returns it to the treasury.

Currently, the cost of paying interest on reverse repo agreements and reserve balances outweighs income. The Fed reported Thursday that as of Dec. 28, the accounting metric it uses to track losses was $18 billion. Many observers expect that the Fed’s plans to raise interest rates further and keep them at high levels will mean fairly large losses for the central bank over time, even if these losses will not affect the action of the Fed’s monetary policy.

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