Roth IRA Contribution Rules and Limits: The 2022 Guide

Roth IRA Contribution Rules and Limits: The 2022 Guide

Roth IRA income and contribution limits
Archive status 2022 MAGI Contribution limit
Married filing jointly (or qualifying widow)
Less than $204,000 $6,000 ($7,000 if 50 or older)
$204,000 to $213,999 Start phasing out
$214,000 or more Does not qualify for a direct Roth IRA
Filing married separately (and lived with your spouse at any time during the last year)
Less than $10,000 Start phasing out
$10,000 or more Does not qualify for a direct Roth IRA
Single, head of household or married filing separately (and you did not live with your spouse at any time during the previous year)
Less than $129,000 $6,000 ($7,000 if 50 or older)
$129,000 to $143,999 Start phasing out
$144,000 or more Does not qualify for a direct Roth IRA

Married filing separately and heads of household can use the single limits if they haven’t lived with their spouse in the past year.

You may be able to get around the income limits by converting a traditional IRA to a Roth IRA, which is called a backdoor Roth IRA.

Roth IRA contribution limits

Anyone of any age can contribute to a Roth IRA, but the annual contribution cannot exceed their income. Let’s say Henry and Henrietta, a married couple filing jointly, have combined MAGI of $175,000. Both earn $87,500 a year and both have Roth IRAs. In 2022, they can each contribute a maximum of $6,000 to their accounts, for a total of $12,000.

Couples with wildly disparate incomes may be tempted to add the higher-earning spouse’s name to a Roth account to increase the amount they can contribute. Unfortunately, IRS rules prevent you from keeping joint Roth IRAs—that’s why the word “individual” is in the account name. However, you can achieve your goal of contributing larger amounts if your spouse sets up his own IRA, whether he is working or not.

How can this happen? For example, let’s go back to our hypothetical couple. Let’s say Henrietta is the main breadwinner, pulling in $170,000 a year, while Henry runs the household, earning $5,000 a year. Henrietta can contribute to both her IRA and Henry’s, up to a maximum of $12,000. In this case, they each have their own IRAs, but one spouse funds both.

A couple must file a joint tax return for the spousal IRA to work, and the contributing partner must have enough income to cover both contributions.

Syncing your Roth IRA contributions

Although you can own separate traditional and Roth IRAs, the dollar limit on annual contributions applies to all of them collectively. If a person under the age of 50 contributes $2,500 to an IRA for the 2022 tax year, then that person can only contribute $3,500 to another IRA in that tax year.

Contributions to a Roth IRA can be made up until next year’s tax filing day. So contributions to a Roth IRA for 2022 can be made up until the income tax filing deadline, which is April 15, 2023. Getting an extension of time to file your tax return does not give you more time to make an annual contribution.

If you are a new filer and received a tax refund, you can apply some or all of your contribution. You must tell your Roth IRA administrator or custodian that you want your refund to be used this way.

Converting to a Roth IRA from a taxable retirement account, such as a 401(k) plan or a traditional IRA, has no effect on the contribution limit. However, making a conversion adds to MAGI and may cause or increase the phaseout of the Roth IRA contribution amount. Also, conversions from one Roth IRA to another do not count for purposes of making annual contributions.

Tax benefits for Roth IRA contributions

The motivation for contributing to a Roth IRA is to build savings for the future—not to get a current tax deduction. Contributions to a Roth IRA are not deductible for the year you make them. They probably consist of after-tax money. That’s why you don’t pay taxes on the funds when you withdraw them — your tax bill has already been paid.

However, you may be eligible for a 10% to 50% tax credit on the amount you contribute to a Roth IRA. Low- and moderate-income taxpayers may qualify for this tax break, called the savings credit. This retirement savings credit is up to $1,000, depending on your filing status, AGI, and Roth IRA contribution.

Here are the limits to qualify for the Saver’s Credit for tax year 2022:

  • Taxpayers who are married filing jointly must have incomes of $68,000 or less.
  • All heads of household must have incomes of $51,000 or less.
  • Single taxpayers must have incomes of $34,000 or less.

The amount of credit you receive depends on your income. For example, if you are a head of household whose tax year 2022 AGI shows income of $29,625, then contributing $2,000 (the maximum contribution that qualifies for the allowance) to an IRA (or employer-sponsored retirement plan ) creates a $1,000 tax credit, which is the maximum 50% credit. The IRS provides a detailed chart of the Saver’s Credit.

The tax credit rate is calculated using IRS Form 8880.

Roth IRA withdrawal rules

Unlike traditional IRAs, there are no required minimum distributions (RMDs) for Roth IRAs. You can withdraw Roth IRA contributions at any time, for any reason, without owing taxes or penalties.

Withdrawals for earnings work differently. In general, you can withdraw earnings without penalties or taxes as long as you’re 59½ or older and have had the account for at least five years. This limitation is known as the five-year rule.

Your withdrawals may be subject to taxes and a 10% penalty, depending on your age and whether you meet the requirements of the five-year rule.

If you meet the five-year rule:

  • Under 59½ years: Winnings are subject to taxes and penalties. You may be able to avoid taxes and penalties if you use the money to buy a first home or have a permanent disability. If you die, your beneficiary can avoid taxes on the distribution.
  • 59½ or older: No taxes or fines.

If you don’t meet the five-year rule:

  • Under 59½ years: Winnings are subject to taxes and penalties. You may be able to avoid the penalty (but not the taxes) if you use the money for specific purposes. They include first-time home purchases, special education expenses, non-reimbursable medical expenses and permanent disabilities. If you die, your beneficiary can avoid distribution penalties.
  • 59½ or older: Earnings are subject to taxes but not penalties.

Special changes in 2020

In 2020, the coronavirus stimulus bill (called the Coronavirus Aid, Relief, and Economic Security (CARES) Act) allowed those affected by the coronavirus pandemic a hardship distribution of up to $100,000 without the 10% early distribution penalty that normally it is people under 59½ years of age.

Account holders either had three years to pay the tax due on withdrawals, rather than owing it in full in 2020 – extending that period to 2022 – or they could repay the withdrawal and avoid owing any tax, even if the amount exceeded the annual contribution limit for this type of retirement account.

Changes to Roth IRA rules

The Tax Cuts and Jobs Act of 2017 made some changes to the rules governing Roth IRAs. Previously, if you converted another tax account (Simplified Employee Pension (SEP) IRA, Savings Incentive Match Plan for Employees (SIMPLE) IRA, traditional IRA, 401(k) plan, or 403(b) plan) to a Roth IRA and then changed your mind , you could undo it in the form of recharacterization.

This is no longer the case. If the conversion was made after October 15, 2018, it cannot be reclassified back to a traditional IRA or in its original form.

Record keeping for Roth IRA contributions

You do not need to report the Roth IRA contribution on your federal income tax return. However, it is highly recommended that you keep track of it, along with your other tax records for each year. This will help you prove that you have completed the five-year holding period for receiving tax-free earnings distributions from the account.

Each year you make a Roth IRA contribution, the custodian or administrator will send you Form 5498, IRA Contribution Information. Box 10 of this form reports your Roth IRA contribution.

What are the rules for putting money into a Roth Individual Retirement Account (Roth IRA)?

Most income earners will qualify for the maximum contribution of $6,000 in 2022, or $7,000 for those aged 50 and over. If your income falls within the Roth IRA phaseout range, you can make a partial contribution. You cannot contribute at all if your modified adjusted gross income (MAGI) exceeds the limits.

Can you contribute to a Roth IRA at any time?

Yes, you can open a Roth IRA at any age as long as you have earned income (you can’t contribute more than your income). There are also no required minimum distributions (RMDs), so you can leave the Roth IRA to your heirs if you don’t need the money.

What is the five-year rule for Roth IRAs?

The five-year Roth IRA rule states that you cannot withdraw tax-free earnings until at least five years after you first contributed to a Roth IRA. This rule applies to everyone who contributes to a Roth IRA, whether they are 59½ or 105.

The bottom line

Although tax-deductible, contributions to a Roth IRA give you the opportunity to build a tax-free savings account. You can use this account in retirement or leave it as a legacy to your heirs. Roth IRAs offer many of the benefits of regular IRAs, but with more flexibility. They work well for people who are more likely to need tax relief later rather than sooner. Opening one is easy, and many excellent Roth IRA providers handle these accounts.

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