|Roth IRA Income and Contribution Limits|
|Filing Status||2022 TWELVE||Contribution Limit|
|Married filing jointly (or qualifying widow(er))|
|Less than $204,000||$6,000 ($7,000 if age 50 or older)|
|From 204,000 to $213,999||Start to step out|
|$214,000 or more||Ineligible for a direct Roth IRA|
|Married filing separately (and you lived with your spouse at any time during the past year)|
|Less than $10,000||Start to step out|
|$10,000 or more||Ineligible for a direct Roth IRA|
|Single, head of family, or married filing separately (and you did not live with your spouse at any time during the past year)|
|Less than $129,000||$6,000 ($7,000 if age 50 or older)|
|From 129,000 to $143,999||Start to step out|
|$144,000 or more||Ineligible for a direct Roth IRA|
Married filing separately and head of household filers can use the single person limits if they have not lived with their spouse for the past year.
You may be able to get around income limits by converting a traditional IRA into a Roth IRA, known as 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 earned income. Let’s say Henry and Henrietta, a married couple filing jointly, have a combined MAGI of $175,000. They both earn $87,500 a year, and both have Roth IRAs. In 2022, they can contribute a maximum of $6,000 to their accounts, for a total of $12,000.
Couples with very different incomes may be tempted to add the name of the higher-earning spouse to a Roth account to increase the amount they can pay. Unfortunately, IRS rules prevent you from maintaining joint Roth IRAs—that’s why the word “individual” is in the account name. You can accomplish your goal of larger amounts, however, if your spouse sets up his or her own IRA, whether it works or not.
How can this happen? To illustrate, 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 the 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 earn enough income to cover both contributions.
Timing Your Roth IRA Contributions
Although you can have a traditional IRA and a separate Roth, the dollar limit on annual contributions applies to each. If a person under the age of 50 deposits $2,500 into one 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 to the following year’s tax filing day. Therefore, contributions to a Roth IRA for 2022 can be made through the deadline for filing income tax returns, which is April 15, 2023. If an extension of time to file a tax return is obtained, you are not given more time to make an annual contribution to do.
If you are an early bird filer and received a tax refund, you can apply some or all of it to your contribution. You must instruct your Roth IRA trustee or custodian that you wish to use the refund in this manner.
A conversion to a Roth IRA from a taxable retirement account, such as a 401(k) plan or traditional IRA, has no impact on the contribution limit. However, a conversion adds to MAGI and may trigger or gradually increase your Roth IRA contribution amount. Also, transfers from a single Roth IRA to a Roth IRA do not count for purposes of making annual contributions.
Tax Breaks for Roth IRA Contributions
The incentive to contribute to a Roth IRA is to build savings for the future – not to get a current tax deduction. Contributions to Roth IRAs are not deductible for the year you make them; rather, they are 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 tax credit of between 10% and 50% on the amount contributed to a Roth IRA. Low- and moderate-income taxpayers may qualify for this tax break, known as the Saver’s 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 Savings Credit for tax year 2022:
- Taxpayers who are married and filing jointly must have an income of $68,000 or less.
- All household filers must have an income of $51,000 or less.
- Individual taxpayers must have an income of $34,000 or less.
The amount of credit you get depends on your income. For example, if you are a head of household with an AGI showing income of $29,625 in the 2022 tax year, then a $2,000 contribution (the maximum contribution that qualifies for the benefit) to an IRA (or employer-sponsored retirement plan) generates a $1,000 tax. credit, the maximum credit being 50%. The IRS provides a detailed chart of the Saver’s Credit.
The tax credit percentage 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 your Roth IRA contributions at any time, for any reason, without incurring any taxes or penalties.
Earnings withdrawals work differently. In general, you can withdraw earnings without penalties or taxes as long as you are 59½ years of age or older and have owned the account for at least five years. This restriction 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:
- Younger than 59½: Earnings are subject to taxes and penalties. You may be able to avoid taxes and penalties if you use the money to buy a home for the first time or if you have a permanent disability. If you die, your beneficiary may be able to avoid taxes on the distribution.
- 59½ or older: No taxes or penalties.
If you do not meet the five year rule:
- Younger than 59½: Earnings 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, qualified educational expenses, unreimbursed medical expenses, and permanent disabilities. If you die, your beneficiary may be able to avoid penalties on the distribution.
- 59½ or older: Earnings are subject to taxes but not penalties.
Special Changes in 2020
In 2020, the coronavirus stimulus bill (known as the Aid, Relief, and Economic Security (CARES) Act) allowed those affected by the coronavirus pandemic to receive a hardship distribution of up to $100,000 without the 10% early distribution penalty those who are usually younger than 59½. consideration
Account owners also had three years to pay the tax due on withdrawals, instead of all of it being due in 2020—that period was extended to 2022—or they could refund the withdrawal and any tax avoid, even if the amount was greater than the annual contribution limit. for that type of retirement account.
Changes to the Roth IRA Rules
The Tax Cuts and Jobs Act of 2017 made several changes to the rules governing Roth IRAs. Previously, if you converted another tax-advantaged account (Simplified Employee Pension (SEP) IRA), Savings Incentive Matching Plan for Employees (SIMPLE) IRA, traditional IRA, 401(k) plan, or 403(b) plan to a Roth IRA. and then you changed your mind, you could undo it in the form of recharacterization.
That is no longer the case. If the conversion occurred after October 15, 2018, it cannot be recharacterized back to a traditional IRA or back to its original form.
Record Keeping for Roth IRA Contributions
You do not need to report your Roth IRA contribution on your federal income tax return. However, it is recommended that you keep track of it, along with your other tax records for each year. This will help you demonstrate that you have met the five-year holding period for taking tax-free earnings distributions from the account.
Each year you make a Roth IRA contribution, the custodian or trustee will send you Form 5498, IRA Contribution Information. Box 10 of this form lists 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 phased-in range of a Roth individual account (Roth IRA), 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 make more than your earned income). There are also no required minimum distributions (RMDs), so you can leave your Roth IRA to your heirs if you don’t need the money.
What is the five year rule for Roth IRAs?
The Roth IRA five-year rule states that you cannot withdraw your earnings tax-free until at least five years after you originally contributed to a Roth IRA. This rule applies to everyone who contributes to a Roth IRA, whether they are 59½ or 105 years old.
The Bottom Line
Although not tax deductible, contributions to a Roth IRA give you the opportunity to create 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 likely to need tax relief sooner rather than later. Opening one is easy, and many excellent Roth IRA providers handle these accounts.