How do you know a money move is probably a good idea? Because the IRS limits how much you can do–they don’t want you to have too much of a good thing! That’s exactly the case with IRA contribution limits: because individual retirement accounts are such a good idea, anyone who can afford to would take advantage of them to improve their tax situation, whether for the current year (traditional IRAs) or for future years (Roth IRAs). So you need to understand IRA contribution limits so that you can get the full benefit from IRA contributions without exceeding the limits and facing tax penalties.
2022 IRA Contribution Limits
IRA contributions limits can change from year to year based on inflation adjustments in the tax code. For 2022, you can put up to $6,000 into an IRA, plus an additional $1,000 if you are 50 year old or older (this extra $1,000 is known as a “catch-up contribution.”
The $6,000/$7,000 limit applies to both traditional IRAs and Roth IRAs in total. For example, if you are under age 50, you can contribute $6,000 to a traditional IRA or $6,000 to a Roth IRA, or any combination of traditional and Roth contributions that add up to $6,000. You can’t contribute $6,000 to a traditional IRA and $6,000 to a Roth IRA. Your total contributions cannot exceed $6,000. For anyone age 50 or older, the total limit is $7,000.
“I” is for “Individual”
It’s important to remember that INDIVIDUAL retirement accounts are specific to each person. You can have an IRA and your spouse can have an IRA, but there is no such thing as a joint IRA.
That means each spouse (under age 50) has a contribution limit of $6,000. Your household (husband and wife) may contribute up to $12,000, with $6,000 going into the husband’s IRA and $6,000 going into the wife’s IRA.
You Must Have Gross Income to Contribute to an IRA…
You cannot make IRA contributions that are larger than your taxable compensation. That is, you must work for money in order to be able to contribute to an IRA. If all of your earnings are from interest, dividends, capital gains, or Social Security, you can’t contribute to an IRA. If your taxable compensation is less than the applicable IRA contribution limit, then you can still contribute to an IRA, but your contributions is even more limited. For example, if you have only $3,000 of taxable compensation, then you can only contribute $3,000 to an IRA.
An exception to this is a spousal IRA. This is an IRA for a non-working spouse. The income used to contribute to both the working spouse’s IRA and the non-working spouse’s IRA comes from the working spouse. Again, you have to have enough taxable compensation to contribute to a spousal IRA. So, to make the maximum contribution ($6,000 for the working spouse and $6,000 for the non-working spouse), the working spouse must have taxable compensation of at least $12,000. If the working spouse has taxable compensation less than $12,000, then the maximum contribution is limited to the working spouse’s taxable compensation.
…But Not Too Much Income
Going back to the idea of too much of a good thing, the IRS curtails your IRA contributions depending on your income.
For Roth IRAs, if your filing status is single, head of household, or married filing separately (and you did not leave with your spouse during the year), if you earn more than $144,000 in 2022, you cannot contribute to a Roth IRA. If you earn less than $125,000, then you can contribute up to $6,000 ($7,000 if you are age 50 or older). If you earn between $125,000 and $144,000, then your limit is reduced depending on exactly how much you earn. The limit for married filing jointly is $214,000, with no limit for incomes below $204,000.
Not being able to contribute directly to a Roth IRA has given rise to the backdoor Roth IRA contribution.
For traditional IRAs, you are still allowed to contribute up to the maximum regardless of your income. However, the higher your income, then if you and/or your spouse is covered by a retirement plan at work (e.g., a 401(k) plan), then less of your IRA contribution is tax-deductible (which is the whole point of contributing to a traditional IRA).
If you and/or your spouse is covered by a retirement plan at work, here are the 2022 income levels that affect the deductibility of your traditional IRA contributions:
| Filing status | MAGI | Deduction limit |
|---|---|---|
| Single or head of household (and covered by retirement plan at work) | $68,000 or less | Full deduction |
| More than $68,000 but less than $78,000 | Partial deduction | |
| $78,000 or more | No deduction | |
| Married filing jointly (and covered by retirement plan at work) | $109,000 or less | Full deduction |
| More than $109,000 but less than $129,000 | Partial deduction | |
| $129,000 or more | No deduction | |
| Married filing jointly (spouse covered by retirement plan at work) | $204,000 or less | Full deduction |
| More than $204,000 but less than $214,000 | Partial deduction | |
| $214,000 or more | No deduction | |
| Married filing separately (you or spouse covered by retirement plan at work) | Less than $10,000 | Partial deduction |
| $10,000 or more | No deduction |
