What You Need to Know About Roth IRA Income Limits 

Both a traditional Individual Retirement Arrangement (IRA) and a Roth IRA provide tax relief. The difference is when that relief applies:

• In a traditional IRA, the money you pay into the account is free of tax – you get to deduct it from your taxable income for the tax year in which you contribute it. But you pay tax when you draw money out, presumably after you retire. This approach is called tax deferred.
• But in a Roth IRA, Uncle Sam takes his cut up front – you pay into the account from your after-tax income. But everything you draw from that account after you retire (or even before, in some cases) will be tax-free. 

Roth IRAs might sound like a good deal, but it depends on your personal circumstances. Many financial planners advise young people to save as much as they can afford in Roth IRAs, before their income rises above the contribution limit. Generally, because the more you earn the more tax you pay, if you expect your income will be higher in retirement than during your working life, then paying the tax up front with a Roth IRA can mean a lower total tax bill over your lifetime. Alternatively, if you are unsure about your retirement tax status, it can be helpful to diversify with both taxed investment and savings accounts and tax deferred. For example, if you have a tax-deferred 401(k) through your employer, which will incur tax when you draw from it in retirement, you could include a Roth IRA in your retirement planning so that you will be able to take some of your retirement income tax free.¹

Two other differences between traditional and Roth IRAs result from the different initial tax treatment:

• When you can access your contributions: With a Roth IRA you can take out your contributions – but not their earnings – at any time without tax or penalty, even before you retire. Earnings can be taken out tax free provided you are over 59½ years old and have held your Roth IRA for more than 5 years.
• Whether you must make withdrawals: With a traditional IRA you must make withdrawals, known as “required minimum distributions,” once you reach 72. But you can leave your money in a Roth IRA for as long as you like.

So, if you are still working in your seventies, or you have income from other sources that you want to reinvest, a Roth IRA could be a good choice.

Income limits on Roth IRA contributions exist because the tax advantages of IRA accounts are meant to benefit average American workers. Income limits prevent highly paid people from benefiting more than the average person, or family.² For tax-year 2022, income limits on Roth IRA contributions begin to kick in at:

• $129,000 for single people and heads of households.
• $204,000 for married people filing joint tax returns.

If you earn above those income limits, the amount you can contribute to a Roth IRA gradually tapers off according to a formula described below. The accompanying table shows how Roth IRA contributions taper off as your income rises. In 2022, if your income is at or above the maximum – $144,000 if you’re single, $214,000 if you’re married³ – you won’t be able to contribute to a Roth IRA, though you can still use a traditional IRA. Two more key points are worth noting about Roth IRA income limits:

• Your modified adjusted gross income is what’s used for Roth IRA calculations. For more, read “What is Modified Adjusted Gross Income?”
• If you’re married but file separate tax returns, you’re disqualified from using a Roth IRA if your income is more than $10,000.

2022 Income Limits for Roth IRA Contributions

Source: IRS

The chart shows, for example, that a single person whose income is under to $129,000 can contribute the maximum amount to their Roth IRA.

For 2021 and 2022, the maximum you can contribute to a Roth IRA (or a traditional IRA) is $6,000 ($7,000 if you are over 50).⁴

That’s a combined maximum, across all your IRA accounts. It’s up to you to decide how you want to split your contributions within that limit: you could, for example, put $3,000 into each account, or you could opt to contribute more to one account than the other. You can’t contribute more than you earn, so if you earn less than the Roth IRA contribution limit for your age, your Roth IRA contribution limit is effectively your total income. 

To figure out your Roth IRA contribution limit, you first need to calculate your modified adjusted gross income (MAGI), not taxable income. MAGI is essentially your adjusted gross income (AGI) with certain adjustments added back in. Which adjustments you add back are different depending on the tax purpose involved. For calculating Roth IRA contribution limits, you’ll add back any of the following that apply to you:

• Traditional IRA contributions.
• Taxable Social Security payments.
• Deductions you took for student loan interest or tuition.
• Excluded foreign income.
• Half of any self-employment taxes.
• Interest from Series EE savings bonds used to pay for higher education expenses.
• Losses from a publicly traded partnership.
• Passive income or loss.
• Rental losses.
• The exclusion for adoption expenses.

In practice, there may be little difference between AGI and MAGI for many people.

Once you have your MAGI, these four steps constitute the formula for calculating your Roth IRA contribution limit:

1. Subtract from your MAGI the amount from the table above that qualifies for the maximum Roth IRA contribution.
2. Divide the result by $15,000, or $10,000 if you are married and filing a joint return.
3. Multiply the maximum contribution limit by the result from step 2. 
4. Subtract step 3’s result from the maximum contribution limit. This is your contribution limit.⁵

Next, let’s plug numbers into the formula to show how it works. Suppose you are a single person younger than 50 with a MAGI of $135,000. Here’s the formula in action:

1.  $135,000 - $129,000 = $6,000
2.  $6,000 ÷ $15,000 = 0.4
3.  $6,000 x 0.4 = $2,400
4.  $6,000 - $2,400 = $3,600.

So, in the example above, $3,600 is the maximum you can contribute to a Roth IRA in 2022 if you’re single and earn $135,000. As this shows, however, calculating MAGI and Roth IRA contribution limits can be complex, so it may be wise to seek advice from a professional tax adviser.

It can be easy to exceed your Roth IRA contribution limit. It might be because your income for the year was higher than you expected, so your contribution limit was lower; or, at the opposite end of the scale, you earned less than the amount you put into your Roth IRA. Or perhaps you simply lost track of how much you had contributed over the year. 

If you accidentally pay more into your Roth IRA than your contribution limit, the government will tax the excess amount at 6% each year as long as it remains in the account. To avoid the tax, you can withdraw the excess amount along with any earnings, though if you are under 59½ or have held the Roth IRA for less than 5 years you will pay a penalty. You may also have to pay tax on any earnings from the excess amount.⁶

The Takeaway