In this episode of Adam Talks, IRA Financial’s Adam Bergman Esq. reviews the 2022 IRA and 401(k) contribution limits and discusses the limits and deadlines for every scenario.
2022 IRA and 401(k) Contribution Deadline Rules
Hey everyone, Adam Bergman here, tax attorney and founder of IRA Financial. On today’s podcast, going to review in detail what you need to know to make IRA/401(k) contributions for the 2022 taxable year. Because guess what? There are different rules for IRAs, SEPs SIMPLEs, Solo Ks, regular 401(k)s, lots of rules, mixed bag of rules. So, what I want to do on today’s podcast is put on my tax lawyer cap, even though I don’t have a hat handy right now, and give you the exact rules that you need to know to maximize your IRA, Roth, SEP, SIMPLE, Solo K, 401(k) contributions.
So, let’s start with the easiest, and that’s the traditional IRA and Roth IRA. And for 2022, you have until April 15, ’23 to make contributions for ’22, okay? Not including, no extension. So, you have to make the ’22 contributions, which are $6,000 if you’re under 50, $7,000 if you’re over 50 by April 15 for the 2022 taxable year. The ’23 IRA contributions can be done until ’24, April 15. So, you always have a couple extra months, until April 15, to kind of see where you’re at, work with your tax advisor, figure out if you got some extra cash, figure out your income, right? You need earned income to make IRA contributions. We know even though you make a million dollars, you can still do a Roth IRA thanks to the Backdoor Roth IRA rules, which means you just make a traditional IRA contribution, just do not take a tax deduction, and then immediately convert it to Roth. And that’s been available since 2010, when the IRS got rid of the income limitations for Roth conversion. So, IRAs and Roths, super simple. You have until April 15, ’23 to make your 2022 contribution. So that’s the IRA world.
What about SEP IRA? So, SEP IRA is a profit sharing plan. Any business can set up a SEP. Generally, they’re done, or at least established, by small businesses, one to, you know, five or so employees. Why? Because generally, it’s a percentage of the eligible employee’s income. So, if it’s just you and you make $100K, if you’re a sole proprietor or a single member LLC, meaning you file a Schedule C, it’s 20% of your net Schedule C up to a maximum $61,000 for 2022. If you’re over 50, there’s no catch-up. Now, if you are a C or an S corp, and get a W-2, it’s 25% of your W-2 up until the $61,000 limitation. You have until you file your business tax return, including extensions. IRAs, remember, it’s April 15, 2023 for the 2022 taxable year; no extensions allowed. Even if you file an extension on your 1040, you cannot extend the IRA deadline. It’s 2023, April 15, and that’s for the 2022 taxable year. SEPs – it’s including extensions, okay? So if you have a sole proprietor, you file April 15 and you extend until October 15, you can make your SEP contributions by October 15, ’23 for the 2022 taxable year. If you are a C or S corp, you do either March 15, April 15, and you extend either September 15 or October 15, then you have until the final return is filed, including extensions to make your SEP contributions, which again, 20% of your comp, okay? Or 25% if you are a W-2, all the way up until the return is filed, including extension. So, that gives you a bit of time to kind of figure out where you’re at, which is kind of nice.
Okay, so let’s now move to SIMPLE IRAs. A SIMPLE IRA, again, is a small type of retirement plan. It’s kind of a poor man’s 401(k), that’s what I call it. Why? Because in 2022, all you can put away is $13,500. Whereas, we know a 401(k), you can do contributions of 20,500, plus if you’re over 50, you can go up to $27,000, whereas a SIMPLE IRA will provide you a much smaller number, which is $14,000. It goes up to $15,500 in 2023, and the catch up is $3,000. So much smaller than the $6,500 for a 401(k), okay? So, that’s why I call it the poor man’s 401(k), because you can’t put away as much as a 401(k) and catch-up is smaller as well.
So, what are the deadlines for doing SIMPLE IRA contributions for 2022? Well, it’s kind of like a quirky rule, you have basically until January 30, ’23 to make the $14,000 contribution, including catch-up for the 2022 taxable year. So, traditional IRA, Roth IRA, you have until April 15. SEP IRA, you have until your business return is filed, including extensions. For the SIMPLE IRA, actually, you have until January 30. You get like a 30-day window to make that contribution, including catch-up. And then if there’s an employer matching contribution, which generally, it’s about, less than 3%, you have until the company has until they file a return to do that employer match. So, it’s kind of similar to a 401(k), whereas, the employee deferral has to be done by January 30. (We’ll get to the 401(k) in a minute.) The profit sharing, so to speak, the employer match, like a SEP IRA, can be done up until the employer files a return, just like a SEP. SEP is kind of a profit sharing match. The SIMPLE match is kind of the same thing, and you have until the company files a return, since that matching contribution is coming from the company and not the employer, okay?
Now let’s move into the regular 401(k) world, and we’ll get to the Solo in a minute. So regular 401(k) world, you work at IRA Financial, you work at Tesla, Apple, 2022, $20,500, $27,000 if you’re over 50. Generally, you need to elect to make that contribution by 12/31. In most cases, it’s pulled out of payroll, so you basically have to go to your human resource plan administrator and let them know that you want to accelerate any more contributions in the last month of the year because once ’23 rolls around, generally they’re not going to let you touch 2022. Most businesses work that way because the money comes out of payroll. If you have a business where you have employees and you don’t use a payroll system, technically you could write the check and date it 12/31, even though it’s January 5, and then deposit it in January ’23 for the 2022 taxable year. It’s kind of an accounting nightmare. It’s not really done. The Solo K, we’ll talk about that momentarily where that’s a little bit more common. But, for regular 401(k)s, that $20,500 or $27,000 if you’re over 50 employee deferral, generally, you need to elect to do it by 12/31. Generally, the contribution is made by 12/31 and then that employer match, that, if you’re a safe harbor, that 3% to 5% or whatever the employer match is, generally, the company has until they file their business tax return to make that employer match. Some businesses automatically do that employer match throughout the year. Others will wait to the end of the year to just preserve cash flow and then make that employer match before they file the tax return. So, for 2022, they would have until they file their return plus extensions to do, let’s say, the 3% safe harbor match, whereas the employee deferral of $20,500 or $27,000 if you’re over 50, that can be done, or that must be done by 12/31, or at least the election needs to be done. In most cases, the cash is actually deposited into the 401(k) by 12/31.
So, now let’s move to the Solo K, which is the most popular plan for someone that’s self-employed. Eligibility – you need to have a business and there cannot be any full-time employees between 1000 hours or three consecutive years 500 hours from any non-owner employees. So, owners count, so if you have a business where it’s like five partners and you have no non-owner employees that work more than a thousand hours or three consecutive years 500 hours, you’re all good. Spouses do not count as employees either. So if it’s just you and your spouse and you have a consulting business, even though your spouse is not an owner, if he or she, as long as they’re married, you’re married, even if they work over 1000 hours, they’re not deemed an employee for ERISA purposes and therefore you can still have Solo 401(k), even if you have a non-owner employee, just because a spouse is not deemed an employee.
So Solo K, break it down kind of like a regular 401(k): $20,500 or $27,000, the employee deferral for 2022 if you are a W-2. If you have a C or S Corp. That generally needs to be done by 12/31, but if you are a sole proprietor or single member LLC, do not have a W-2, you technically have until April 15 or when your 1040 is filed, including extensions to make your employee deferral contribution of $20,500 or $27,000 if you’re over 50. Why? Why is the IRS letting someone who has sole proprietor or single member LLC do that and someone who is a W-2 has to make the employee deferral by 12/31? Well, if you are self-employed, you understand, right? Because if you have a small business, you’re not getting a salary, you’re not going to know your Schedule C net amount. Net amount, I mean revenues minus your deductions, probably closer to April. Why? Because you’re going to work with your tax advisor or go to H&R Block, whoever you work with, kind of work the numbers right? There’s no business that has year-end financials done by 12/31, right? You still have checks coming in end of the year, you have bonus payments, you have rent deductions, all this stuff. And someone’s got to put it all together and then give you your net Schedule C. Why? Because your employee deferral is based off your net Schedule C and there is no way, I’m telling you, there’s no way any sole proprietor or single member LLC is going to have their net Schedule C number in by 12/31. Almost impossible. So, that’s why the IRS gives you until April 15 or until your 1040, including extension, is filed, let’s say October 15. Because they understand that small businesses the Schedule C is attached to 1040 and the majority of small businesses, if not significantly all, of sole proprietors, single member LLCs need until April or October at least, to figure everything out and kind of know what their net Schedule C amount is. So, that’s why if you’re a Solo 401(k) of a sole proprietor Schedule C, single member LLC Schedule C, you have until your 1040 is filed, including extensions, to do the employee deferrals.
The profit sharing, always, always, if you’re a C Corp, S Corp, single member LLC, sole proprietor, just like the SEP, just like the SIMPLE Match, you have until your tax return, whether it’s 1040 if you’re a sole proprietor, single member LLC, or 1120s, 1120 if you’re a C Corp is filed, including extensions, okay? So, for a Solo K, it’s bifurcated, employee deferrals if you’re a W-2 should be done by 12/31. Now, as I mentioned, you can elect to do it, maybe write the check 12/31 in January if you get stuck, you’re on the beach, Christmas or skiing and you just don’t have the time. That’s kind of possible, but generally not possible if you work for Tesla, because they’re not going to be able to do that for you. It’s just going to come out of payroll. Whereas, employee deferrals, if you’re a Schedule C sole proprietor, as I mentioned previously, you’re not going to be able to figure out your net Schedule C amount. That is why you’re going to have until April 15 or extension to make your employee deferral plus your profit sharing and the profit sharing, that 20% or 25%. That always can be done until the business or the 1040 is filed, including extensions, okay?
So, let me just review everything for you because I know there’s a lot of different rules, and let me just simplify everything one final last time.
- Traditional and Roth IRA for ’22, you have until April 15, ’23 – no extensions.
- SEP IRAs, you have until the business files the return, including extensions.
- SIMPLE IRAs, the employee amount of $14,000, including the catch-up, has to be done by January 30. You have a 30-day window in ’23. The match can be done until the business files its return, including extensions.
- Regular 401(k), you work at Tesla, Apple, IRA Financial: $20,500 or $27,000 if you’re over 50, generally must be done by 12/31, okay? The safe harbor or any employer match can be done until the employer files a return, including extensions.
- Solo 401(k)s – single member LLC, sole proprietor, you have until April 15 or an extension, October 15, since you’re filing a 1040. If you’re a W-2, C or S corp, your employee deferral, the $20,500 or the $27,000 if you’re over 50, must be done by December 31, and the profit sharing, you can do until the company files their return, including extensions, okay?
So, the only wrinkle here is SIMPLE IRA, you have the 30-day weird window and the Solo K, if you’re a single member LLC, sole proprietor, that, you have until April 15 plus extensions to make that contribution. Whereas, if you’re a W-2, it’s done by 12/31. Why? Because if you’re a W-2, you’re getting payroll, and you know what your salary is; you know your salary in February, you know your salary in June, you know your salary in December. Whereas, a net schedule C, you don’t know your net amount probably until March, April, May, June, July, August, September. So, the IRS gives you some flexibility to kind of make that final contribution, or at least tally up that contribution for both employee deferrals and employer contributions; where if you’re W-2, you know your W-2, so you can make your employee deferral by 12/31, but they will give you more time for your profit sharing because that obviously is based off the business and the business, even though the number is based off your W-2, the business has more time to make the payment because the deduction comes off their tax return. So, it needs to be included when they file their tax return.
So, there it is. I hope I simplified everything for you. I know it’s kind of confusing. I don’t know why they don’t just make everything tax return, including extension, but I don’t make the rules. That’s not who I am. So, I just, like you, have to live by them and thankfully I understand them. So, hopefully I’ve done my job and now explain them to all you, and you guys understand them, so now you are in the best position to maximize your IRA, SEP, SIMPLE, 401(k), Solo K, whatever plan you participate in, you now know all the rules and now you could take advantage of the benefits of contributions, get deductions, if you’re a Roth: maximize, take advantage of tax-free growth and maximize contributions for ’22.
So, appreciate you guys spending some time here today. If you’re listening, obviously, it’s a weekly podcast, so subscribe. Also, leave a comment because I promise I do everything in my power to respond to all comments and I try to do it as quick as possible, so feel free to leave a comment. If you’re watching on YouTube, definitely subscribe to our channel. It’s an amazing channel, great, great content and give me a thumbs up. Really would appreciate it. Hope Christmas shopping is going well. No one’s stressed out. Online shopping is miraculous, no need to deal with malls, so all that’s good, and anyways, appreciate you giving me a couple of minutes of your free time to hopefully educate yourself and as I mentioned, I learn a lot from you guys too. So, if you have comments or questions, keep them rolling. I look forward to them and wish everyone a very, very, very happy holiday season and speak to everyone again next week. Still a couple more weeks in 2022.
Take care, be well and have a great rest of your day. Thanks.