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2022 IRA Contribution Limit Announced

2022 IRA Contribution Limit
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Every year, the IRS makes cost of living changes to the IRA contributions limits. For 2022, the IRA contribution limit is $6,000 or $7,000 if you are at least age 50. Again, there has been no increase into how much you can put away in an IRA. The last time there was an increase was in 2019, when the limit went up $500. Here’s the breakdown for the 2021 IRA contribution limit changes.

2021 IRA Contribution Limits

  • IRA Limit – $6,000
  • IRA Catch-up Contribution – $1,000
  • SEP IRA – $58,000
  • SIMPLE IRA – $13,500
  • SIMPLE Catch-up – $3,000

2022 IRA Contribution Limits

  • IRA Limit – $6,000
  • IRA Catch-up Contribution – $1,000
  • SEP IRA – $61,000
  • SIMPLE IRA – $14,000
  • SIMPLE Catch-up – $3,000

What this Means

As you can tell from the lists, the only limits that have increased for 2022 are SEP and SIMPLE IRAs. All regular IRA plan limits remain unchanged for next year, including traditional plans, Roth IRAs and even Self-Directed IRAs. For small business owners or self-employed individuals who have a SEP IRA, they can save an additional $3,000 next year. For those with a SIMPLE IRA, you can contribute an additional $500 for 2022.

Deductible Phase-Outs

One of the biggest benefits of saving with a traditional IRA, is the upfront tax break you receive. However, in order for your contribution to be deductible on your tax return, you must be under a certain income. If you are under the limit, you can take a full deduction. The amount that is deductible is phased out until you reach the maximum annual income, at which point, you do not receive a deduction.

Filing StatusPhase-out BeginsPhase-out Ends
Single or Head of Household/Covered by a workplace plan$68,000$78,000
Married Filing Jointly/IRA Contributor Covered by a workplace plan$109,000$129,000
Married Filing Jointly/IRA Contributor Not Covered but Spouse is$204,000$214,000

What the above table shows is the modified adjusted gross income (MAGI) where the phase-out begins and ends. If you are under the beginning number, you get a full deduction. If you are over the ending number, you receive zero deduction. Of course, if you fall in the middle of the range, you get a partial deduction. The amounts vary on your filing status, and whether or not you are covered by a workplace plan, such as a 401(k). There is an increase of $2,000-$6,000 across the different scenarios. Because of this, you can make more money in 2022 and receive the deduction.

Roth IRA Income Restrictions

While a traditional IRA offer tax-deductible contributions for those who qualify, there is no deduction for Roth IRAs. This is because Roths are funded with after-tax money. However, all qualified distributions from a Roth are tax-free during retirement. Traditional IRAs are taxable upon withdrawal. The caveat is that high-income earners cannot directly contribute to a Roth IRA. Much like the traditional phase-outs, there are phase-outs on the income limits for Roth IRAs as follows:

Filing StatusPhase-out BeginsPhase-out Ends
Single Filers and Heads of Household$129,000$144,000
Married Filing Jointly$204,000$214,000

Just like the traditional IRA deduction limits, if you are under the beginning number, you can make a full Roth IRA contribution. However, if you are above the income threshold, you cannot make a direct Roth IRA contribution. If you fall withing either range, you can make a partial contribution. The 2022 Roth IRA income limit is up $4,000 for single filers and $6,000 for married filers filing jointly.

Note that high earners can still get funds into a Roth by utilizing the backdoor Roth IRA strategy. You can simply contribute after-tax funds to a traditional plan and then convert that amount into a Roth at any time. Bear in mind that the new tax proposal could eliminate the backdoor Roth IRA at the end of 2021!

Saver’s Credit

The saver’s credit is an incentive for low- and moderate-income earners. This tax credit is provided to those people who save for retirement, who are under certain income thresholds. To receive the credit, your annual income must fall below $68,000 if you are married filing jointly (up $2,000 from 2021), $51,000 if you file as a head of household (up $1,500) or $34,000 if you are a single filer or married filing separately (up $1,000).

Conclusion

For the third consecutive year, there has been no increase to the IRA contributions limits. However, if you are self-employed or have a small business, you can contribute a bit more to your SEP or SIMPLE IRA. Plus, you can earn a bit more money and still receive a tax deduction or contribute to a Roth. Remember, you have until you have until you file your taxes to contribute to an IRA. Therefore, you can contribute for 2022 up until April 15, 2023 to make the most of your IRA contributions.

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