You're allowed to contribute up to $6,000 to an IRA in 2022 or $7,000 if you're 50 or older. That could go a long way toward helping you prepare for retirement, especially if it's invested for a few decades. But you're not likely to find a spare $6,000 hiding in your couch cushions.
If you want to max out your IRA this year, you'll need a plan. You have until April 2023 to make your 2022 contributions, but if you're motivated, you can try these tips to max out your IRA a lot sooner -- and one goal could be to do so before you have to file your 2021 tax returns in April 2022.
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1. Create a plan
The first step is to figure out a contribution schedule that works for you. First, make note of any IRA contributions you've already made for 2022. Subtract this from the annual contribution limit to figure out how much you have left to save.
Then, decide how often you plan to contribute. It could be every week, every pay period, or every month, depending on what works for you. The important thing is to have a schedule that you can stick to.
Divide the total amount you have to contribute by the number of contributions you plan to make to figure out how much you should be setting aside each time. For example, if you plan to contribute $6,000 to your IRA for 2022 by mid-April and will contribute a little money every week, you'd have to save $500 per week for 12 weeks.
Again, you don't have to make all your 2022 IRA contributions by mid-April. You actually have until April 2023 to do so. But getting them out of the way early is smart if you can swing it. Your money will be invested for longer, and this can lead to more earnings for you.
2. Set up automatic contributions
Once you've chosen your contribution schedule, see if you can set up automatic contributions through your IRA provider. You may have to link to your bank account in order to do this.
Automatic contributions relieve you of the responsibility of manually transferring funds. You can always adjust your schedule if need be over time, but this way, you won't have to worry about forgetting to make contributions in the first place.
3. Consider a side hustle
If you're struggling to contribute as much money as you'd like, consider adding a side hustle to your plan. This can help you generate additional income, which you can put toward your retirement. There's virtually endless side hustle opportunities out there these days, so you should be able to find something that suits your skills and talents. And there's plenty of jobs you can do from home, too, if you're worried about COVID-19.
You won't have to be concerned about paying taxes on your side hustle income if you stash that money in a traditional IRA. Contributions to these accounts reduce your taxable income for the year, and then you pay taxes on your withdrawals in retirement.
But if you decide to contribute to a Roth IRA, which is popular among those who believe they'll be in the same or a higher tax bracket in retirement, you'll have to budget some of your side-hustle income for taxes. Your Roth IRA contributions don't reduce your taxable income this year, but you'll get tax-free withdrawals in retirement.
4. File taxes early and invest your refund
Another way to get some easy cash for your IRA is to file your 2021 taxes as soon as possible. When you get your refund, deposit this into your retirement account. The average 2020 tax refund was $2,827, so this could go a long way toward helping you max out your IRA.
But even following these tips, it may not be possible to make all your 2022 IRA contributions by April. And that's OK. If it doesn't feel doable, you can set a more reasonable goal, like by the end of summer or the end of the year. But the above tips still apply.
Create a plan, set up automatic contributions, and look for opportunities to boost your income along the way. If you do this, you should have a good chance of maxing out your IRA in 2022.
