Sadly, yet again, the Roth IRA contribution limits will not be increasing in 2022. On a brighter note, the income levels that allow for a Roth IRA contribution have increased. This could enable some workers to contribute larger amounts.
Investing in a Roth IRA is a great way to increase your tax-free income in retirement. While you won’t get a tax deduction for your contributions, your money will grow tax-free and can be withdrawn tax-free if you follow the Roth IRA rules and regulations. The biggest problem with the Roth IRA is the small contribution limits, as well as the further reduction of allowable contributions depending on your household income.
2022 Roth IRA Contribution Limits and Income Limits
The maximum allowable contribution to a Roth IRA in 2022 is just $6,000 for those below the age of 50. Assuming you are allowed to make the maximum contribution and earn more than $60,000 per year, you will likely need to do some additional investing for retirement elsewhere. If you are age 50 or older, you can make a Roth IRA catch-up contribution of $1,000 for a grand total of $7,000 in 2022. This amount has been the same since 2019.
However, depending on your household income, your Roth IRA contribution may be limited or even eliminated. If you are looking to max out your Roth IRA in 2022, your income must be below $129,000 as a single filer. This number is just $204,000 for those who are married filing jointly (yet another example of the marriage penalty in the tax code). Your contributions will begin to be phased out if your household income is above these levels. Roth IRA contributions are completely eliminated once your household income reaches $144,000 as a single filer or $214,000 as a married couple filing jointly.
Increase income limits for ROTH IRA contributions in 2022, could increase the number of Americans … [+]
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Roth IRA vs. Traditional IRA
I will save the debate of which is best for another time. But I think it is important that you understand the big difference between a Roth IRA and a traditional IRA. The simplest, shortest answer is the Roth IRA receives no upfront tax deduction on contributions. However, your money grows tax-free and can be withdrawn tax-free, assuming you follow Roth IRA withdrawal guidelines. With a traditional IRA, you will typically (but not in all cases) get a tax deduction for contributions, but your withdrawals will be taxable.
How Roth IRA Income Phase-Outs Work
For more exact information about Roth IRA income limitations visit the Roth IRA page on the IRS website.
If you file your tax return for 2022 as a single filer (or head of household)
You can contribute up to the Roth IRA limit if your Modified Adjusted Gross Income (MAGI) is below $129,000 in 2022, which is up from $125,000 in 2021. Your 2022 Roth IRA contribution limit is either $6,000 if you are under 50 or $7,000 if you are 50 or older.
Lastly, you can only contribute up to your MAGI. So, if you made less than $6,000 (or $7,000 age 50+), your maximum Roth IRA contribution in 2022 would be limited to 100% of your income. For example, if you worked part-time in retirement and had a MAGI of $4,200, you would only be able to contribute $4,200 to your Roth IRA in 2022.
For those with higher incomes, you can contribute a reduced amount to your Roth IRA if your MAGI in 2022 is $129,000, or more, but less than $144,000 (up from the range of $125,000 to $140,000 for 2021). If you fall into this income range, it could be a good idea to make your Roth IRA contribution when filing your taxes each year to avoid over contributing.
You can’t contribute to a Roth IRA at all if your MAGI is $144,000 or more (up from $140,000 in 2021).
Being Married could make it harder for higher income couples to fully fund ROTH IRAs in 2022.
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Roth IRA Income Phase-Outs For Married Couples Filing Jointly
You can contribute up to the Roth IRA limit if your 2022 MAGI is less than $204,000, up from $198,000 in 2021. While that may not be life-changing, every bit helps.
You can contribute a reduced amount to your Roth IRA for 2022 if your MAGI is $204,000 to less than $214,000. This is up from the range of $198,000 to $208,000 for 2021.
You can’t contribute to a Roth IRA all if your MAGI is $214,000 or more (up from $208,000 for 2021).
Put Your Roth IRA Contributions on Autopilot
The more you can automate your investing, the easier it will be to stay on track for your financial goals. If you know your income will allow you to contribute the maximum amount to your Roth IRA in 2022, set up automatic contributions each month. Take $6,000 (or $7,000 if age 50+) and divide by the number of months left in the year. For example, if starting in January, you would have 12 months to get the full $6,000 into your Roth IRA, so set up an automatic contribution of $500 per month.
If your income may limit your Roth IRA contribution, set up the contributions to a taxable investment account and just move the money over to the Roth ahead of filing your taxes when you know exactly what your MAGI will be and how much you can contribute to your Roth IRA for 2022. You have until April 15, 2023, to contribute to your Roth IRA for 2022.
Even if you can’t max out your Roth IRA in 2022, make sure you are investing for retirement. Starting small can build a saving habit. When I was 22, a good friend advised me to start contributing $25 per month. At the time, it seemed like a lot of money, but I didn’t really miss it.