In 2021, 85% of all American households made zero contributions to Individual Retirement Accounts (IRAs), whether traditional IRA or Roth IRA. anyone with earned income and non-earning spouses with a working spouse, can contribute up to $6,000 for the 2022 tax year. Persons 50 and older can invest an additional $1,000 in an IRA.
Traditional IRAs offer a tax deduction at tax time but withdrawals in retirement are taxed. Roth IRAs provide no immediate income tax deduction but withdrawals in retirement are tax-free. Income limits for Roth contributions are $129,000 for single filers and $204,000 for married joint filers. Filers who earn too much to qualify for a Roth can do a "back door" Roth. First contribute to a non-deductible traditional IRA and then move the money to a Roth IRA, paying taxes on the earnings and then leave the money to grow tax free.
With most taxpayers over paying their taxes through withholding and getting a refund, consider starting or boosting your IRA contribution with your refund. Your future self will thank you.
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