A guide to tax season for your IRA 

 

  1. Contribution limits 
  2. What is earned income?
  3. Contribution deadline/window 
  4. Tax forms 
  5. Tax advice 

Contribution limits 

Traditional and Roth IRA

An IRA contribution is any money you deposit into an IRA. Rollovers and earned dividends are not considered IRA contributions. 

The 2021 and 2022 contribution limits for traditional and Roth IRAs are:  

Age  Contribution limit 
Up to age 50  The lesser of $6,000 or your earned income.
Age 50 or over  The lesser of $7,000 or your earned income.

Total contributions between all traditional and Roth IRAs can’t exceed these contribution limits.  

For example, if you have a traditional IRA and a Roth IRA, you cannot exceed the $6,000 or $7,000 contribution limits (depending on age) between both IRAs.  

 

Spousal IRAs

If you don’t have earned income but you file your taxes jointly with your spouse, you may be eligible to contribute to your IRA depending on your spouse’s earned income. Please refer to this article for additional IRS guidance. 

M1 does not offer “Spousal IRA” as an account type. An IRA account must be created under the account owner’s name and SSN. Spouses utilizing the IRS Spousal IRA allowance will each need to create their own M1 profiles and open their own traditional or Roth IRA to make contributions. 

 

SEP IRAs

The contribution limits for SEP IRAs are: 

Year  Contribution Limit 
2022 The lesser of $61,000 or 25% of your compensation.
2021 The lesser of $58,000 or 25% of your compensation.

 

SEP IRA contributions are different than other IRA contributions because they are not eligible for contribution year changes. SEP contributions are designated as a contribution for the calendar year in which they are made. 

  

For example, M1 will report SEP IRA contributions made in 2021 as 2022 contributions, and any contributions made in 2022 as 2022 contributions.   

 

Contribution Deadline/Window 

The contribution window for a tax year is January 1 of the given tax year until the tax deadline of the following year.

From January 1 to the tax deadline (typically April 15), M1 offers the option to choose “Prior Year” or “Current Year” when making a contribution. This allows you to max out your contributions for the previous tax year. 

Please note that the 2022 tax filing deadline is April 18. This means that you have until April 18, 2022 to contribute to your IRA for 2021. 

  

What is earned income? 

Qualified earned income for a Roth IRA includes:  

  • Wages 
  • Salary 
  • Tips 
  • Self-employment income 
  • Union strike benefits 
  • Long-term disability payments received prior to retirement age 

Examples of income that don’t count as qualified earned income include: 

  • Social security payments 
  • Unemployment benefits 
  • Rental property income 
  • Alimony and child support payments 

If you have no earned income and contribution to your IRA, you may be subject to a 6% IRS penalty due to making an excess contribution. The penalty tax will be applied each year that the excess contribution remains in your IRA. 

 

Please note that qualified earned income types are subject to change based on IRS guidance. If you have questions about your income qualification, we recommend contacting a tax professional. 

 

Tax forms 

Depending on actions taken within your IRA account, you may receive Form 1099-R or Form 5498. A 1099-R is used to report withdrawals out of an IRA and a 5498 is used to report a contribution into an IRA. We expect 1099-Rs to be available for viewing in the beginning of February, and 5498s to be available for viewing in early June. 

 

You can find your tax forms in the Documents section of your M1 profile. Click here for more information on finding your Documents section and to learn more about tax forms.

  

Tax advice 

M1 and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only. It is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.  

 

If you have further questions, please contact us.

 

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