Workers looking to take advantage of a Roth IRA may have an easier path in 2022. That’s because the IRS has increased the income ranges on IRAs, allowing you to earn more money and still take advantage of the tax-free Roth account or the tax-deferred traditional IRA.
But those looking to save more in either type of IRA account are going to be disappointed by the new IRS rules.
Fortunately, you will be able to save more through workplace retirement plans such as 401(k)s and 403(b)s in 2022 thanks to the latest annual adjustments. Here’s what else you need to know.
Higher income limits for IRAs
The good news for savers is that the income limits are climbing — albeit modestly — for IRAs. For 2022, the limits on modified adjusted gross income (MAGI) to be eligible for a Roth IRA can be seen in the table below.
|Filing Status||Maximum income for full contribution||Phases out at|
|Individual, head of household||$129,000||$144,000|
|Married filing jointly||$204,000||$214,000|
In 2021, the Roth IRA limits are $125,000 to $140,000 for individuals and heads of household, and $198,000 to $208,000 for married filing jointly.
However, if you still want to take advantage of the account, you may be able to use a backdoor Roth IRA, but you’ll want to be careful about the tax consequences.
For traditional IRAs, the limits on MAGI for deducting contributions to an IRA have also increased in 2022. Note that these limits apply only if you and your spouse are covered by a workplace retirement plan.
|Filing Status||Maximum income for fully deductible contribution||Deductibility phases out at|
|Individual, head of household||$68,000||$78,000|
|Married filing jointly||$109,000||$129,000|
If you and your spouse are not covered by an employer plan, your contributions are fully deductible regardless of your income.
Income limits are only one difference between the traditional IRA and the Roth IRA. Here are other key differences and which account is better for investors.
Bad news for IRA contribution limits
Workers looking to take maximum advantage of their retirement accounts may be disappointed by the recent news, however. The tax agency is maintaining the same annual contribution limits on IRAs in 2022, keeping the limit at $6,000 for most people, or $7,000 if you’re aged 50 or older.
However, maximum contributions to employer-sponsored plans did get a boost to $20,500 for 2022, including popular 401(k) and 403(b) plans. Those over age 50 can still make catch-up contributions of $6,500.
The contribution limit on a SIMPLE IRA, another workplace plan, also increased to $14,000 from $13,500 in 2021.
While IRA contribution limits aren’t going up in 2022, you can still make the most of what’s available to you. That means maxing out your employer-sponsored accounts and your IRA. Those looking to optimize their situation should also look at the tax advantages of a health savings account.
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- 6 differences between a Roth IRA and a Roth 401(k)
Note: Bankrate’s Brian Baker contributed to an update of this story.