Self-Directed IRA Long-Term Contribution Tips

Receiving a tax benefit is possible when making new contributions to a self-directed IRA LLC, in addition to enjoying increased flexibility in investment choices, similar to other types of IRA accounts.

Waiting until tax time to make a single contribution to your IRA is a common approach, but it may pose a challenge if you do not have sufficient liquid cash in March or April.

After the hectic period of tax season, we decided to seize this opportunity to provide some suggestions and effective methods for those looking to make IRA contributions and optimize the tax advantages of their Checkbook IRA LLC.

Ensure you are Eligible to Make IRA Contributions

You must have earned income in order to contribute to an IRA.
With a tax-deferred Traditional IRA, you can contribute up to the limit, which is $6,000 for those under age 50 or $7,000 for those 50 and older. (Effective in 2021 & 2022).
However, you may not be able to take a tax-deduction for your contribution if you have access to an employer plan like a 401k and/or have earned income over certain thresholds.

IRS IRA Contribution Limits

The limits for a Roth IRA remain unchanged, however, there are distinct income restrictions that determine one’s eligibility to contribute to a Roth account. Visit the IRS website for general guidance and seek assistance from a licensed tax advisor to comprehend the details pertaining to your individual circumstances.

Contribution Limits for 2022

Savers under the age of 50 can contribute a maximum of $19,500 to their 401K plan for 2021, while those over 50 can contribute up to $26,000. The reason for the higher limit for the latter group is due to a catch-up contribution provision. To understand the regulations regarding catch-up contributions, please refer to the information provided by the IRS.

Starting from 2022, there has been an increase in the contribution limit to $20,500 per year, with a higher limit of $27,000 for individuals aged 50 and above who are saving.

Savers who reach the maximum 2022 401K contributions can enjoy an anticipated tax benefit. By contributing to their 401K with pre-tax funds, the account holder can save more in proportion to their contribution amount. This additional $1,000 can prove significant, especially for individuals placed in higher tax brackets.

The contribution limits for self-directed IRAs remain largely unchanged for 2022 compared to 2021. From 2021 to 2022, the annual contribution limits continue to be $6,000 for individuals below 50 years old and $7,000 for individuals aged 50 or above.

If you contribute to multiple accounts, keep in mind that the $6,000-$7,000 limit applies to all IRA accounts collectively.

Here are the traditional IRA phase-out ranges for 2021:

$68,000 to $78,000 – Single taxpayers covered by a workplace retirement plan
$109,000 to $129,000 – Married couples filing jointly. This applies when the spouse making the IRA contribution is covered by a workplace retirement plan.
$204,000 to $214,000 – A taxpayer not covered by a workplace retirement plan married to someone who’s covered.
$0 to $10,000 – Married filing a separate return. This applies to taxpayers covered by a workplace retirement plan.

Here are the income phase-out ranges for taxpayers making contributions to a Roth IRA:

$129,000 to $144,000 – Single taxpayers and heads of household
$204,000 to $214,000- Married, filing jointly
$0 to $10,000 – Married, filing separately

Pension plans and retirement saving accounts have their contribution limits assessed annually by the IRS to account for changes in the cost of living. The contribution limits for both 401K and IRA remained unchanged last year, as the IRS did not make any significant adjustments.

Saver’s Credit income phase-out ranges for 2022 are:

$41,000 to $68,000 – Married, filing jointly.
$30,750 to $51,000 – Head of household.
$20,500 to $34,000 – Singles and married individuals filing separately.

In 2022, the limit for contributions to SIMPLE retirement accounts will be raised to $14,000.

Have a Regular Savings Habit

Saving a small amount each month for an IRA contribution is much simpler than making a lump sum payment at tax time. While you don’t have to make monthly contributions directly to the IRA, it is beneficial to set aside some money in a designated account for future IRA contributions.

Combine Contributions Every Other Year

From January 1st of a tax year to April 15th of the following year, it is possible to contribute to an IRA. This timeframe allows for contributions to be made for both the current and previous years.

If you don’t have a particular investment objective, and simply wish to regularly contribute to your savings, this trick can help you avoid paperwork and fees when transferring funds to your IRA LLC.

Alternatively, if you have an investment that you wish to make and require more available capital, you can seize this opportunity during the 1st quarter of the year to double your contributions, provided that you have not yet contributed for the previous year.

Keep Your Money Working

It is advantageous to keep your capital actively invested, regardless of whether you are contributing to an IRA or utilizing another savings method. One drawback of the IRA LLC structure is the limited investment opportunities available until the money is placed into the LLC. Generally, funds held in the custodian’s IRA account will be in a cash account with minimal interest earnings.

As mentioned earlier, obtaining funds from the IRA for the LLC incurs a $40 transaction fee. Hence, while making one or two contributions annually is acceptable, making one contribution every month would be inefficient.

It is often logical to gather planned contributions outside the self-directed IRA system and subsequently incorporate them into the IRA LLC periodically when necessary. If you are accumulating funds in a standard savings or stock account, it would be advisable to make annual or biennial IRA contributions to your self-directed plan during the first quarter, as mentioned previously.

If you prefer, you can also opt to hold a separate IRA at a conventional brokerage and make contributions based on your own schedule. In the event that you come across a chance to invest additional funds within your self-directed IRA, you have the flexibility to perform an IRA-to-IRA transfer of any desired amount at any given moment.