2022 Roth and Traditional IRA Contribution Limits

Before depositing funds into a retirement account, it’s essential to understand the current IRA contribution limits to maximize your investments. Before each taxable year, the Internal Revenue Service designates predetermined contribution limits for retirement accounts and other retirement savings plans. These annual contribution limits apply to individual retirement accounts or IRAs.

For 2022, the total amount you can contribute to a Roth or Traditional IRA is $6,000, or $7,000 for individuals age 50 or older, or if less, your taxable income. For example, if your taxable income is $3,000, you may only contribute up to $3,000. These are the same limits used for IRAs in 2021. According to the IRS, IRA contribution limits refer to the combined total of your Roth and Traditional IRAs.

What Are the IRA Income Limits for 2022?

In addition to standard contribution limits, your contributions could be limited based on your modified adjusted gross income (MAGI). The income limit for single tax filers in 2022 is greater than or equal to $144,000, or $214,000 for couples who are married and filing jointly. In short, you are not eligible to contribute to an IRA if your income is higher than or equal to the income limits, depending on your filing status. For more information, the IRS provides a chart that shows the amount of IRA contributions you can make for 2022.

What is a Roth IRA?

A Roth IRA is an individual retirement account that individuals can use for investing after-tax income. The Roth IRA was established in 1997 and got its name from Willam Roth, a former lawyer and Senator for Delaware. Roth IRAs require individuals to contribute with after-tax dollars (the remaining money after paying income tax). In short, this means that funds contributed to a Roth IRA can not be deducted from your taxable income when filing tax returns.

What makes the Roth IRA so unique? For one thing, qualified contributions made to a Roth IRA grow tax-free. Secondly, you can make tax-free withdrawals from the account once you reach 59 ½ years of age, also tax-free. In addition, you can also make contributions after age 70 ½, which is not always possible with other retirement plans. This rule means that Roth IRAs do not have required minimum distributions (RMDs), which means individuals can use their Roth IRA account throughout their lifetime.

What is a Traditional IRA?

Similar to Roth IRAs, Traditional IRAs are individual retirement accounts that individuals can use for investing for pre-tax income. The main difference is with the Traditional IRA is that contributions are tax-deductible, which provides immediate tax benefits. Like Roth IRAs, individuals can withdraw money after reaching 59 ½ years of age. With Roth and Traditional IRAs, qualified contributions grow tax-free before withdrawals occur during retirement years.

The second difference is that investors will owe standard tax rates on distributions made during retirement. The clear advantage is that taxable income can be reduced by the contributed amount when filing taxes for immediate tax benefits. In contrast to the Roth IRA, Traditional IRAs have required minimum distributions at age 72 ½ for account holders.

Roth IRA vs. Traditional IRA

While both the Roth IRA and Traditional IRA accounts are great options for retirement savings, it’s essential to understand the tax advantages before making contributions. A Roth IRA provides future tax benefits, and a Traditional IRA offers immediate tax benefits. The following table compares the main differences between Roth IRAs and Traditional IRAs.

Rules	Roth IRA	Traditional IRA
2022 Contribution Limits	$6,000 ($7,000 if age 50+)	$6,000 ($7,000 if age 50+)
2022 Income Limits	Under $144,000 (single); Under $214,000 (married, filing jointly)	No income limits
Contributions	After-tax; Tax-free growth	Pre-tax; Tax-deferred growth
Taxes	Tax-free withdrawals after 59 ½	Contributions are tax tax-deductible
Required Minimum Distributions	None for account holders	Distributions begin at age 70 ½ for account holders.
Withdrawals pre-retirement	Contributions are penalty-free	Penalty-free beginning at age 59 ½
Best suited for	Individuals expected to be in a higher tax bracket during retirement	Individuals expected to be in a lower tax bracket during retirement

IRA Withdrawals Before Retirement

When making withdrawals from a Traditional IRA, before age 59 ½, the amounts are factored into your taxable income. In most cases, you will receive a tax penalty of 10% in addition to paying standard income tax on the withdrawn amount(s). However, there are exceptions to this rule, such as qualified medical expenses or first-time home purchases in some cases.

There is also a penalty for withdrawals made during the first five years of having the account with a Roth IRA. Even after 59 ½, the Roth IRA account must be at least five years old before taking distributions from a Roth IRA without penalty.

What if You Contribute Too Much?

Unfortunately, there is a penalty for contributing more than the contribution limits allow for a given year. The IRS considers this an excess contribution and will impose a 6% tax for each year the excess contribution remains in the IRA. The penalty will not be more than 6% of the combined value of each of your IRAs. If you contributed more than the annual contribution limit, be sure to withdraw the excess amount before tax returns are due to avoid tax penalties. If you have earned any returns on the excess contributions, such as capital gains or dividend payments, you should also withdraw that amount to be safe.

Some brokerages will allow you to exceed the IRA contribution limits without warning. However, most online brokerages will display an error when attempting to contribute more than is permitted by the IRS for the contribution year.

Can I Set Up an IRA for a Non-Working Spouse?

Legally married couples who file joint tax returns can open a Roth or Traditional IRA for the non-working spouse. A Spousal IRA allows the working spouse to contribute to an individual retirement account on behalf of the non-working spouse.

In this case, the working spouse’s income must be higher than or equal to the combined contributions made to the accounts of both spouses. Spousal IRAs are not joint accounts and function the same as regular IRAs. Because of this, the combined amount a married couple filing jointly can contribute to both IRAs is $12,000 per year, or $14,000 if they are age 50 or older.

The income limit for Spousal IRAs is $214,000 for married couples filing jointly. In contrast, the income limit is $144,000 for single tax filers. If you and your spouse are considering a Spousal IRA, review the contribution limits for your modified adjusted gross income before making contributions.

Can Children Contribute to an IRA?

Income can come from almost any work performed, whether mowing lawns or babysitting. One exception would be money earned from allowances or household chores since these are not considered taxable income. Children can contribute up to their earned income but not exceed the annual contribution limit of $6,000.

What is the IRA Contribution Deadline?

In general, you have until April 15, 2022, of the current tax year to make IRA contributions for the previous tax year. For example, you can make IRA contributions between January 1, 2021, and April 15, 2022, for the 2021 tax year. The IRS can change the contribution deadline occasionally. For example, the IRS moved the deadline to make 2020 contributions from April 15, 2021, to May 17, 2021. This deadline extension applied to individual retirement accounts (IRAs) and health saving accounts (HSAs).

Conclusion

Contributing to an IRA is one of the best ways to build up your retirement savings. If you contribute to one of these retirement accounts, make sure you understand the annual contribution limits and tax advantages before proceeding. You will also want to review the income and deduction limits to avoid unnecessary penalties.

Are you considering contributing to an individual retirement account in the near future? If so, please let us know in the comments section if you have questions about the IRS contribution limits. Your feedback is always welcome and greatly helps us improve our user experience. Cents Investor is here to help you realize your dividend growth investing goals!