Table of Contents
Annual contribution limits to IRAs
Income limits for Roth and traditional IRA contributions
Roth and Traditional IRA income limits: 2021 vs 2022
Excess IRA contributions
Exceptions to IRA contribution limits
What is the saver’s credit?
The bottom line
Jun 21, 2022
6 min read
The maximum IRA contribution limit for 2022 remains unchanged for the fourth year in a row. However, it does depend on an investor's age as well as income.
An individual retirement account (IRA) can be a tax-efficient vehicle for retirement savings, but it’s not a free-for-all when it comes to contributing funds. Investors must adhere to the IRS’s annual contribution limit, which may change from year to year. Restrictions and exceptions could also impact how much individuals may contribute.
The maximum IRA contribution limit for 2022 remains unchanged for the fourth year in a row. However, this maximum contribution amount does depend on an investors’ age, and these rules apply to both traditional and Roth IRAs.
Individuals 49 or younger may contribute as much as $6,000 each year.
Individuals 50 or older can make a catch-up contribution up to $1,000, bringing their total IRA max contribution limit to $7,000.
It’s important to note these are combined limits across traditional and Roth IRAs. An investor eligible to make the maximum contribution cannot choose to invest $6,000 in their traditional IRA, and then another $6,000 in their Roth IRA. The $6,000 limit applies to the sum of their contributions to traditional and Roth IRAs, across all owned accounts.
Age isn’t the only factor that can impact maximum annual contributions. Traditional and Roth IRAs each have unique rules that could limit how much an individual invests every year.
When investing in a traditional IRA, contributions up to the annual limit can be used as a tax deduction. However, the amount that may be deducted could be reduced or eliminated altogether depending on an individual’s access to an employer savings plan. For married couples, the amount may be reduced if a spouse is covered by a retirement plan at work. Those whose income is above the limit may still contribute to an IRA, but the contribution isn’t tax-deductible.
Single/Head of household, and you are covered by a 401(k) or other workplace retirement plan
Married filing jointly/qualified widower, and you are covered by a 401(k) or other workplace retirement plan
Married filing jointly, and you are not covered by a 401(k) or other workplace retirement plan, but your spouse is
Married filing separately, and you or your spouse are covered by a 401(k) or other workplace retirement plan
Money contributed to a Roth IRA is not tax-deductible. Rather, contributions are made with after-tax dollars, fully taxed at the individual’s then-current income tax rate. Withdrawals made during retirement, however — including all investment earnings — are tax-free.
Contribution limits for a Roth IRA depend on the individual’s filing status and income. Each tax filing status has an income limit based on modified adjusted gross income (MAGI). Those who earn more than that can’t contribute to a Roth IRA account.
Single/Head of household
Married filing jointly/qualified widower
Married filing separately
The IRS may change the income and contribution limits for future tax years to account for inflation and increases in cost of living. Between 2021 and 2022, the IRS made two major changes that affected all tax filing statuses.
The IRS raised income limits for traditional IRA deductions, allowing more people to qualify under the new phase-out ranges.
The IRS also increased the income limits and phase-out ranges for Roth IRAs. Individuals previously on the cusp of qualifying may now find they’re eligible.
If a taxpayer deposits more into their individual retirement account than is allowed for that calendar year, this is considered an excess contribution. The IRS charges a 6% tax on excess contributions each year that the money remains in an IRA. To avoid this fee, excess contributions and earnings on those contributions must be withdrawn before the federal tax deadline. Applying excess contributions to later years is also possible, as long as certain requirements are met.
There are two exceptions to IRA contribution limits. The first is that individuals may not invest more than they actually earn in a given year. So, if someone works a few contract jobs and earns $3,500 annually, that would be their personal contribution limit for the year.
There’s also an exception for non-working spouses. An individual who doesn’t earn an income may open a spousal IRA and make contributions using their spouse’s earnings. As long as both individuals meet the other requirements for a traditional or Roth IRA, each may contribute up to the annual limit.
Low and moderate income taxpayers may qualify for a saver’s credit by contributing to an IRA or workplace retirement plan. Depending on income levels, an individual could earn a tax credit that amounts to 10%, 20%, or 50% of their IRA contribution. The maximum credit is $1,000 (or $2,000 for taxpayers who are married filing jointly). Individual filers may earn the credit on up to $2,000 in contributions. Married taxpayers who file jointly may earn the credit on up to $4,000 in contributions.
An IRA offers tax advantages on the road to retirement, but it’s important for investors to understand the guidelines and contribution limits to avoid ongoing penalties from the IRS.
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