IRA Contribution Limits For 2022 – Forbes Advisor

· For IRA contributions, the amount of the Saver's Credit is 50%, 20%, or 10% of your contributions, depending on your adjusted gross income. The 

Contributing to an individual retirement account (IRA) is a great way to boost your retirement savings and benefit from tax-sheltered investment growth. Depending on your income and other factors, you might even get a tax deduction. Let’s take a closer look at the rules governing your IRA contributions.

Traditional IRA Contribution Limits for 2021 and 2022

The annual contribution limit for a traditional IRA in 2021 is $6,000 or your taxable income, whichever is lower. If you were 50 or older by the end of 2021, you can contribute up to $7,000 total. The annual IRA contribution limits for 2022 are the same: $6,000 or your taxable income, whichever is lower, and $7,000 if you are 50 or older by the end of 2022.

Tax Deductions for Traditional IRA Contributions

Contributions to a traditional IRA may be tax-deductible for some investors. If you (and your spouse, if you’re married) are not covered by an employer-sponsored retirement plan, you may deduct your full contribution from your taxes.

For example, if you didn’t have access to a workplace 401(k) plan and you contributed $6,000 to a traditional IRA, you’d be able to deduct $6,000 from your taxes. Same deal if you’re married and neither spouse is covered by a retirement plan at work.

If you (and your spouse, if you’re married) are covered by an employer-sponsored retirement plan, then the traditional IRA tax deduction may be limited based on your modified adjusted gross income (MAGI)—that’s your income before subtracting the student loan interest tax deduction and other tax deductions. Check your eligibility for a traditional IRA tax deduction on the table below:

Higher Tax Deduction Income Limits for Some Married Couples

There is a separate set of income thresholds for traditional IRA tax deductions for married couples where one spouse is covered by a workplace retirement plan and the other spouse is not—or doesn’t work, for instance. Check your eligibility for a tax deduction on the table below:

Roth IRA Contribution Limits for 2021 and 2022

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Roth IRAs have the same annual contribution limits as traditional IRAs for 2021 and 2022: the lower of $6,000 or your taxable compensation. If you are 50 or older by the end of 2021 or 2022, you may contribute up to $7,000 to a Roth IRA in that year.

Not everyone is allowed to contribute to a Roth IRA, however. If your income is above certain thresholds, you may be ineligible for a Roth IRA or your contributions may be limited. Here are the Roth IRA income thresholds for 2021 and 2022:

IRA Calculator

Use our traditional IRA calculator to see how much your nest egg will grow by the time you reach retirement.

Exceptions to IRA Limits and Recent Changes

As with all things, there are exceptions to the rules for IRA contributions. In addition, recent changes have altered long-standing rules governing IRA contributions.

• Contributions are no longer restricted by age. In 2019 and earlier, people who were 70 ½ or older couldn’t make regular contributions to a traditional IRA. Starting in 2020, anyone with an earned income can make contributions to either traditional IRAs or Roth IRAs.

• Non-working spouses without income may contribute to an IRA. If you do not have taxable compensation, but file a joint return with a spouse who earns income, you can open up an IRA in your own name and make contributions through a spousal IRA. The combined IRA contribution limit for both spouses is the lesser of $12,000 per year or the total amount you and your spouse earned this year. If one of you is 50 or older, the federal limit rises to $13,000, and if both of you are, it is $14,000 per year.

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• Contribution limits don’t apply to rollover contributions. If you roll another retirement plan—such as a 401(k) from a previous employer— into your IRA, the rollover doesn’t count toward the annual contribution limit.

What Happens If You Contribute Too Much to an IRA?

If you aren’t careful with your IRA contributions, you can exceed the annual limits. People who are juggling multiple IRA accounts or who set automated contributions too high could end up putting too much money in a Roth IRA or a traditional IRA.

If you’ve exceeded contribution limits, the IRS charges a 6% tax each year on the excess contributions in your account, unless you fix the situation. If you realize your error before you file your tax return, you may withdraw the excess contributions—including earnings—ahead of the tax filing deadline to avoid the 6% tax.

However, you may have to pay income taxes on the earnings and an additional 10% early withdrawal penalty on the amount of extra contributions you withdraw if you are under the age of 59 ½.

If you don’t catch the problem until after you’ve filed your tax return for the year, you can remove the excess contributions and file an amended return by Oct. 15. If you miss the later deadline, you can still fix it by reducing next year’s contributions by the excess amount. But you’ll have to pay the 6% penalty until the excess contributions are corrected.

If you contributed too much to your IRA, it might be a good idea to talk with a tax professional or a financial advisor about setting up better ways to manage your contributions.

What Is the Saver’s Credit?

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To encourage taxpayers to save for retirement, the government offers an incentive: the Retirement Savings Contributions Credit, also known as the Saver’s Credit, which provides a credit when you file your tax return when you contribute to a retirement account. Available to low- and moderate-income earners, you may be eligible for the credit if:

• You make contributions to an IRA or an employer-sponsored retirement plan

• You are age 18 or older

• You’re not a full-time student

• You aren’t claimed as a dependent on someone else’s tax return

For IRA contributions, the amount of the Saver’s Credit is 50%, 20%, or 10% of your contributions, depending on your adjusted gross income. The maximum qualifying contribution is $2,000 ($4,000 if married and filing a joint return), so the maximum Saver’s Credit is $1,000 ($2,000 total for a couple).

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