Calculating Roth IRA: 2021 and 2022 Contribution Limits

How Your Roth IRA Contribution Limit Is Calculated

The primary factors for determining your contribution limit are your filing status and modified adjusted gross income (MAGI), which is your income after considering certain allowable deductions and tax penalties. Based on these two factors, you may be eligible to contribute the max, a reduced amount, or nothing at all.

Contributions to a Roth account are made post-tax, but all earnings grow tax free. Withdrawals of the contributions made during retirement are made tax free. However, only earned income can be contributed to a Roth individual retirement account (Roth IRA).

Also, contributions to Roth IRAs are limited and can be reduced or phased out, depending on your annual income.

The table below highlights the maximum amount of income that you can earn before being ineligible to contribute to a Roth and the income phaseout ranges where your contributions are reduced.

Example of How a Reduced Limit Is Calculated

Below is an example of how the reduced limit is calculated for someone who is filing as single, head of household, or married and filing separately (and you didn’t live with your spouse at any time during the year).

1. Start with your modified 2021 AGI.
2. Subtract $125,000 (based on tax filing status).
3. Divide the result by $15,000.
4. Multiply by your maximum contribution limit.
5. Subtract the result of #4 from the maximum contribution limit.

Please note that the divisor (in step #3) of $15,000 is set by the Internal Revenue Service (IRS), depending on your tax filing status. If your return is filed as married filing jointly or as a widow/widower, then you will use $10,000 as the divisor.

1. 2021 MAGI: $128,000
2. $128,000 - $125,000 = $3,000
3. $3000 / $15,000 = 0.2
4. 0.2 * $6,000 = $1,200
5. $6,000 - $1,200 = $4,800

Using the example information above, the calculated reduced limit would be $4,800 for this individual.

Details of Roth IRA Contributions

The Roth IRA has contribution limits, which are $6,000 for 2021 and 2022. If you’re age 50 or older, you can contribute an additional $1,000 as a catch-up contribution in both 2021 and 2022. Contributions, not earnings, can be withdrawn tax free at any time. 

It’s worth noting that an investor can have both a Roth and a traditional IRA and contribute to both, but the contribution limits apply across all IRAs. For example, suppose an investor contributes $4,000 to a Roth IRA. In that case, that same investor could contribute $2,000 to their traditional IRA in that same year (assuming that their contributions are not limited by their MAGI). If that taxpayer is age 50 or older, they could contribute an additional $1,000.

Age Contribution Limits  

There is no age limit for making contributions to an IRA. There has never been an age limit on Roth IRAs, but traditional IRA contributions used to have an age limit of 70½. That limit was removed with the passage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. 

With a traditional IRA, your ability to participate in a qualified retirement plan (QRP), such as a 401(k), will dictate if and how much you can contribute to the IRA. With a Roth IRA, participation in a QRP has no bearing. 

Roth IRA Contributions and the Saver’s Credit

Roth IRA contributions are not tax deductible. They are made with after-tax dollars. However, low- and moderate-income taxpayers may qualify for the Saver’s Credit.

This tax break allows for a tax credit of 10% to 50% for the amount contributed to a Roth IRA. Depending on the filing status, adjusted gross income (AGI), and Roth IRA contribution, the credit can be up to $2,000. 

For tax year 2021, the top-end income limits are $66,000 for those married filing jointly, $49,500 for head-of-household filers, and $33,000 for single taxpayers.

For tax year 2022, the top-end income limits are $68,000 for those married filing jointly, $51,000 for head-of-household filers, and $34,000 for single taxpayers.

Withdrawals and the CARES Act 

The passage of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020 allowed for the withdrawal of up to $100,000 from Roth or traditional IRAs without having to pay the 10% early withdrawal fee. 

This hardship withdrawal was allowed for those economically affected by the COVID-19 pandemic. The account holder has three years to pay taxes owed on withdrawals vs. having to pay them in the current year. In addition, the withdrawals can be repaid and no taxes owed. The repayment amount doesn’t count toward the contribution limit.