Originally published December 13, 2021
December is a hectic time of year. Between buying the right gifts, making holiday party appearances, and visiting with family, you’d be forgiven if your top concern isn’t maximizing your IRA contributions.
Nonetheless, end-of-year IRA contributions are something you should be thinking about. Especially considering recent reporting by the Wall Street Journal that Americans should begin planning for substantially lower income in their later years.
Luckily, you can still make contributions to your IRA for the 2022 tax year up until Tax Day (Tuesday, April 18, 2023). To help you maximize your investments, we’ll be covering:
- IRA contribution limits for 2022 and 2023
- Roth IRA contribution income limits
- The 2022 IRA contribution deadline
- How to contribute to your IRA after the end of the year
- What to do if you contribute too much to your IRA
Roth and Traditional IRA Contribution Limits
Though the way they’re funded differs—traditional IRA contributions are made with pre-tax income whereas Roth IRA contributions are made using after-tax income—the contribution limits are the same for traditional and Roth IRAs.
For the 2022 tax year, the IRS allows you to contribute up to $6,000 a year to a traditional or Roth IRA—$7,000 if you’re 50 or older. For the 2023 tax year, the IRS increased the contribution limit to $6,500 a year—$7,500 for participants 50 and older.
What Is the IRA Contribution Deadline for 2022?
Though the calendar year ends December 31, unlike with a 401(k), you may contribute to an IRA for the previous tax year up until Tax Day. Just be aware that between New Year’s Day and Tax Day, many IRA providers require you to select which tax year you want your contributions put toward. Once you’ve made your selection, you may not be able to change it.
Keep in mind that the IRA contribution limit is the total amount you can contribute to all of your IRAs in a given tax year. The contribution limit is not per account. If you exceed the limit, you’ll pay a tax penalty until the excess contribution is removed.
So, let’s say you have two IRAs and are 27 years old. In this example, if you contributed $4,000 to one of your IRAs for the 2022 tax year, you may only contribute $2,000 to the second IRA for the same tax year.
However, IRA and 401(k) contribution limits are separate from each other, meaning you can contribute the maximum amount to a 401(k) or 403(b) while in the same year contributing the maximum to your IRA or IRAs.
It’s also important to note that 401(k) and IRA rollovers don’t count toward IRA contribution limits.
Roth IRA Contribution Income Limits
Roth IRAs are popular for a reason: Qualifying distributions are completely tax-free. (For a distribution to be qualified, you must have had your Roth IRA open for at least five years and be 59 and a half years old.)
It’s because Roth IRAs are not taxed at withdrawal that led Congress to impose contribution income limits to prevent people over a certain modified adjusted gross income (MAGI) from taking advantage of an investment vehicle designed to incentivize the middle class to set aside more for the future.
What Is Modified Adjusted Gross Income (MAGI)?
MAGI is your gross income—which includes wages, as well as business income, capital gains, dividends, and retirement distributions—minus certain deductions. Some of those deductions include alimony payments, contributions to retirement accounts, and student loan interest, as well as educator expenses (career specific).
So with that in mind, let’s take a look at the income limits for Roth IRA contributions in 2022 and 2023.
Roth IRA Income Contribution Restrictions
|Filing Status||2022 Modified Adjusted Gross Income (MAGI)||2023 Modified Adjusted Gross Income (MAGI)||Contribution|
|Single, head of household, or married filing separately and you did not live with your spouse at any time during the year||Less than $129,000||Less than $138,000||Up to the limit|
|$129,000 or more but less than $144,000||$138,000 or more but less than $153,000||A reduced amount|
|$144,000 or more||$153,000 or more||Zero|
|Married filing jointly or qualifying widow(er)||Less than $204,000||Less than $218,000||Up to the limit|
|$204,000 or more but less than $214,000||$218,000 or more but less than $228,000||A reduced amount|
|$214,000 or more||$228,000 or more||Zero|
That does not, however, mean that a person earning above the maximum MAGI has no way of funding a Roth IRA. A Roth IRA can still be funded via a rollover from another Roth IRA or 401(k) account, or by converting from a traditional IRA or 401(k).
Learn more: What Is a Backdoor Roth IRA?
IRA Contribution Age Limits
Anyone with an income can contribute to a traditional or Roth IRA. That said, for 2022, IRA account holders are allowed to contribute up to the lesser of $6,000 ($7,000 if over 50 years old) or their taxable income for the year of contribution. (Generally, this doesn’t include passive income.)
Say, for example, you are a college student and working very limited hours but want to open a Roth IRA—a potentially very smart decision. If you earned just $2,000 in a year. You can then only contribute up to $2,000 to your Roth IRA for that year.
Still, you shouldn’t discount that “small” contribution. By starting earlier than most people, you’ll have more time to benefit from the power of compound interest over the long term.
What If You Contributed Too Much to Your IRA?
There’s one thing we still need to discuss… what happens if you contribute more than allowed for a given tax year or select the wrong tax year.
Keeping track of how much you contribute to your IRAs in a given year is ultimately up to you. In the event you exceeded the limit, the IRS will charge you a 6% penalty on the overage.
So, let’s say you over-contributed $100, you would then be required to pay a $6 penalty for each year the contribution remains in your account.
If this happens, contact your IRA custodian to determine how to remove any excess contributions from your account. You might also consult with a trusted financial or tax advisor.
Likewise, if you selected the wrong contribution year, you’ll likely need to reach out to your custodian to have them amend the tax year.
There’s Still Time to Contribute to Your IRA for 2022
The year may be coming to an end, but you still have until April 18, 2023, to contribute to your IRA for the 2022 tax year. And that could be a smart investment strategy. Particularly if you’re nearing the income limit for Roth IRA contributions and want to maximize your contributions over the remaining years you anticipate being eligible.
Not only that, you may not know it, but you can use your IRA to diversify your portfolio beyond the public markets. And that could be a very wise move, especially as the number of publicly traded companies continues to decline.
Want to invest your IRA in alternative assets, such as cryptocurrency, real estate, private equity, or startups?
Am I Eligible for a Roth IRA?
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