What are the Roth IRA Contribution Limits and Changes for 2022?

The majority age of the population of the United States has been 65 years or older since the 1950s and has been steadily growing with each passing decade. In 2019, the average American was expected to live till 79 years of age. Due to increasing life expectancy figures in the country, the number of people in this age group is expected to further increase in the coming years. This has also led to an increase in the number of years an average American retiree is expected to live. With that said, due to several factors such as steeply rising inflation, shrinking Social Security benefits, and the absence of other viable government aids, it has made it essential for all retirement planners to create well-designed retirement plans to ensure that they can live comfortably in retirement.

If you are planning for retirement, the first thing that you need to do is to invest in a retirement plan. There are several retirement plans available such as a 401(k), an IRA (Individual Retirement Account), Roth IRA, and more. As per a 2021 study, almost 71% of the respondents said they have invested in plans, such as 401(k), IRAs, 403(b) accounts, to save for retirement. Every retirement plan has its pros and cons but over the years, Roth IRA has taken over 401(k) and traditional IRA, as the more popular choice among investors owing to its superior benefits.

A Roth IRA is an effective investment instrument where you can grow your retirement funds without being hampered by the disadvantages of a traditional IRA or a 401(k). A Roth IRA allows you to contribute after-tax dollars, earn tax-free growth, and make tax-free withdrawals (subject to certain conditions), all of which are not allowed if you invest in a 401(k) or a traditional IRA. Despite being a part of the same umbrella, a Roth IRA differs in many ways from a traditional IRA like eligibility criteria, investment options, taxation, withdrawal conditions, and more. As per a survey by Fidelity, more than 50% of the traditional IRA contributions are redirected to Roth IRAs. This is especially true for investors between the ages of 23 and 38. Moreover, in 2018, millennials were responsible for opening 41% of new Roth IRAs, showcasing the popularity of Roth IRAs among younger investors.

The Internal Revenue Service or IRS comes out with new contribution limits each year for Roth IRAs. For 2022, you need to know and understand the new contribution limits, changes, eligibility criteria, and the overall functioning of a Roth IRA before you decide to invest in this retirement plan. If you wish to know about Roth IRAs in detail, how to open an account, the way they work, and clear up any doubts that you may have, get in touch with a professional financial advisor to help you do the same.

Let us discuss the new Roth IRA contribution limits and changes for 2022.

What are the Roth IRA contribution limits for 2022?

As an investor, you can contribute after-tax dollars in a Roth IRA subject to the maximum contribution limits as mandated by the IRS. For 2022, you can contribute $6,000 if you are younger than 50 years of age and an additional catch-up contribution of $1,000 if you are 50 years or older. So, in 2022, you can contribute a maximum of $7,000 if you have attained 50 years of age.

As per another mandate by the IRS, you have to ensure that your Roth IRA contributions only come from earned income. Here, earned income can be salary, wages, business profits, freelance work, commission, bonus, and assignment work. What is considered unearned income then? Any income from interest, dividend income, child support, rental income, unemployment benefits, Social Security benefits, pension, and annuity is deemed as unearned income. This makes any contributions from the latter forms of income towards your Roth IRA ineligible. With that said, the IRS deems disability retirement benefits as earned income. However, this exception is allowed to you only up to the age of an annuity or pension if you do not have any disability.

Further, say, your earned income is lower than your permissible contribution limit. In this scenario, you can only contribute the sum equal to your earned income. Say, for example, as per your tax filing status and income limits, you can contribute $6,000 in 2022 to your Roth IRA, but your earned income is only $5,000. In this situation, you can only contribute $5,000 and not $6,000 in your Roth IRA for 2022.

You can open multiple Roth IRAs including more than one type of IRA, such as traditional IRAs, SEP (Simplified Employee Pension) IRAs, etc. However, irrespective of the number of Roth IRAs you own, you cannot exceed the annual contribution limit of $6,000 and $7,000. If you contribute more than the specified limit to your Roth IRA, the IRS can levy a penalty of 6% every year until the error is corrected. However, the aforesaid contribution limits are not applicable, in the case of an IRA rollover wherein you are transferring funds from an existing retirement savings account such as a 401(k) into an IRA.

What are the Roth IRA income limits for 2022?

The IRS issues guidelines each year determining the conditions for contributing to a Roth IRA. Your eligibility to contribute to a Roth IRA depends on your income level meaning if you earn more than a specific amount in the year, you would not be eligible to contribute to a Roth IRA. If you are a single tax filer, your Modified Adjusted Gross Income (MAGI) must be less than $144,000 for the financial year 2022. The MAGI was $140,000 in 2021. In case you are married and file taxes jointly, your MAGI should be less than $214,000 for the tax year 2022. This was capped at $208,000 the previous year.

To better understand and review the differences in MAGI limits and permissible contribution allowance for Roth IRA in 2022 compared to 2021, take a look at the table below.

Tax Filing Status	MAGI 2021	MAGI 2022	Permissible Contribution
Married filing jointly A qualifying widow(er)	Under $198,000	Under $204,000	$6,000 $7,000 (for those above 50)
Married filing jointly A qualifying widow(er)	Higher than or equal to $198,000 but under $208,000	Higher than or equal to $204,000 but under $214,000	Can contribute an amount lower than the maximum ceiling
Married filing jointly or a qualifying widow(er)	Higher than or equal to $208,000	Higher than or equal to $214,000	No contribution allowed
Married filing separately (lived with spouse at any time during the year)	Less than $10,000	Less than $10,000	Can contribute an amount lower than the maximum ceiling
Married filing separately (lived with spouse at any time during the year)	Higher than or equal to $10,000	Higher than or equal to $10,000	No contribution allowed
Single, head of the house, or married filing separately (not living with the spouse at any time during the year)	Under $125,000	Under $129,000	$6,000 $7,000 (for those above 50)
Single, head of the house, or married filing separately (not living with the spouse at any time during the year)	Higher than or equal to $125,000 but under $140,000	Higher than or equal to $129,000 but under $144,000	Can contribute an amount lower than the maximum ceiling
Single, head of the house, or married filing separately (not living with the spouse at any time during the year)	Higher than or equal to $140,000	Higher than or equal to $144,000	No contribution allowed

How can I find out my 2022 Roth IRA permissible contribution limit?

Based on your tax filing status and MAGI combination, you can find out the exact amount that you can contribute to your Roth IRA for 2022. If you are eligible to make the maximum contribution, you can go ahead and do so without any delay. However, if you can only contribute to a Roth IRA up to a lower limit, you can use the following steps to calculate your permissible Roth IRA contributions for 2022:

• Step 1: Find out your MAGI and subtract the applicable figure (based on your tax filing status shown in the table above) from your MAGI.


• $204,000 for married, filing jointly, or a qualifying widow(ers).
• $0, for married, filing separately, and living with spouse any time during the year.
• $129,000 for the rest of the situations.


• Step 2: Divide the result from Step 1 by one of the applicable conditions below:


• $10,000, for married, filing jointly, or a qualified widow(er).
• $10,000, for married, filing separately and living with your spouse any time during the year.
• $15,000, for the rest of the situations.


• Step 3: Multiply the result from Step 2 with the maximum annual contribution limit ($6,000 and $7,000 (50 years or older).


• Step 4: Subtract the result from Step 3 from the maximum contribution limit. Make sure that you do not make any reductions.

After following the above steps, you arrive at the maximum amount you can contribute to a Roth IRA based on your tax status and income eligibility.

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What is the penalty for exceeding the contribution limits for Roth IRA in 2022?

To maximize your savings, you should be hitting the permissible contribution limit that you are eligible for. However, keep in mind that if you contribute above the IRS specified limit, it is deemed as an ineligible contribution by the IRS. If you do not fall within the specified income limit for contributing to a Roth IRA and have a higher income ceiling, the IRS will levy a 6% penalty on the surplus sum until you rectify the mistake.

Let us discuss the different ways through which you can correct this error:

• Take out the extra money, including any earnings on it from your Roth IRA before the expiry of the tax deadline for the financial year.
• If you have already filed the tax returns for the said year, you can file a revised tax return for the applicable financial year after you have withdrawn the surplus money and its earnings from your Roth IRA.
• You also have the option to carry forward the excess contribution to the next year. If you choose to do this, you must deduct the adjusted contribution in the following year. By choosing this option, you will have to pay a 6% penalty in that year, but nothing from then onwards.
• You can also take out the extra funds by December 31 next year, however, in this situation, you will have to pay the 6% penalty for two years but no penalty after that.

By following the aforesaid methods you can correct your excess contribution error but it is better to not make the mistake in the first place. Hence, be cautious and ensure that you adhere to the revised contribution limits each year. Moreover, check your income eligibility and map your tax filing status carefully to determine your qualified annual contributions for a Roth IRA.

What are the Saver’s Credit income limits for 2022?

Saver’s Credit refers to the tax credit that you can claim if you have made eligible contributions to an IRA or another employer-sponsored retirement plan such as a 401(k). It is useful for lowering your tax liability. Saver’s Credit also helps you to boost your savings potential by balancing the cost of funding a retirement account like a Roth IRA.

What constitutes your Saver’s Credit amount?

You have to report your adjusted gross income on the Form 1040 series through which you can arrive at your Saver’s Credit figure. The amount of your credit is 50%, 20%, or 10% of:

• Contributions made by you to a Roth IRA or Traditional IRA
• Contributions made by you to a 401(k), 403(b), SIMPLE plan, etc.
• After-tax contributions made by you to a qualified retirement plan
• Contributions made by you to a 501(c)(18)(D) plan
• Contributions made by you to an ABLE account (as a designated beneficiary).

Do note that any rollover contributions are disqualified for Saver’s Credit. The maximum contribution amount that can qualify for Saver’s Credit is dependent on your tax filing status.

What is the Saver’s Credit for 2022?

Applicable Credit	Married Filing Jointly	Head of House	Single, Married Filing Separately, or Qualifying Widow(er)
50% of your contribution	AGI less than $41,000	AGI less than $30,750	AGI less than $20,500
20% of your contribution	$41,000-$44,000	$30,751-$33,000	$20,501-$22,000
10% of your contribution	$44,001-$68,000	$33,001-$51,000	$22,001-$34,000
0% of your contribution	Above $68,000	Above $51,000	Above $34,000

What is the eligibility criteria for Saver’s Credit?

You can claim the Saver’s Credit if you are:

• Above 18 years of age
• Not listed as a dependent on another person’s tax return
• Not a student

To better understand the applicability of Saver’s Credit, go through the following example:

Let us assume that you are married and you earned $44,000 in 2022. However, your spouse was unemployed and had no earned income for the year. You contributed $4,000 to your Roth IRA for 2022. After your Roth IRA deduction, your AGI on the joint tax return is $40,000. In this case, you can claim a 50% Saver’s Credit of $2,000 on your $4,000 Roth IRA contributions in your 2022 tax return.

To summarize

If you own a Roth IRA, then you must know and adhere to the contribution and income limits set for 2022 by the IRS. By conforming to the Roth IRA guidelines, you can ensure that you do not attract a penalty and contribute an amount within the permissible limit. For more detailed guidance, you can also get in touch with a professional financial advisor and get expert assistance on how to maximize your Roth IRA savings and related benefits for your future retirement financial security.

To get in touch with a fiduciary advisor who may help you understand the Roth IRA contribution and income limits for the year 2022, avoid penalties, and maximize your savings, use the free advisor match service. Based on your requirements, the platform scans through registered and qualified advisors to match you with an advisor suited to your financial needs and goals.