A Roth IRA is a tax-advantaged retirement savings vehicle that allows for tax-free withdrawals if certain conditions are satisfied.
A Roth IRA forms an integral part of many investors’ retirement planning, but they are not available for everyone. If you earn too much in a year, you will not be able to make contributions to your Roth IRA for that year.
For some, there are perfectly legal ways around the rule. For everyone else, there are alternatives to a Roth IRA.
Key Takeaways
- If you earn too much in a tax year, you will be barred from contributing to your Roth IRA for that year. The IRS revises these income limits every year.
- Make sure you check the limits before contributing to your Roth IRA, or you may have to pay a penalty.
- If you earn too much to contribute to your Roth IRA, you have several options. You can contribute to another Roth IRA on behalf of your spouse or contribute to a nondeductible IRA, which has no income limits.
Income Limits for Roth IRAs
There are actually two income limitations for eligibility to contribute to a Roth IRA. The upper boundary is the most important for most people, and we’ll come to that below.
First, though, it’s worth noting that you cannot contribute more to a Roth IRA than you received in earned income for the year. This income can come from wages, salaries, tips, professional fees, and bonuses. But you can’t take a career break or a sabbatical, live on your savings for that year, and still add money to your Roth IRA for that tax year.
There is also an upper limit on who can contribute to a Roth IRA, and how much they can add per tax year. Roth IRAs have several limitations concerning filing status and modified adjusted gross income (MAGI). (Your MAGI is your income reduced by certain deductions, such as contributions to a traditional IRA, student loan interest, tuition and fees, and foreign earnings.)
If your MAGI is above a certain amount, which the IRS adjusts annually, you become ineligible to contribute to a Roth IRA.
The chart below shows the figures for 2021 and 2022.
| Do You Qualify for a Roth IRA? | ||
|---|---|---|
| Category | Income Range for 2021 Contribution | Income Range for 2022 Contribution |
| Married and filing a joint tax return | Full: Less than $198,000 Partial: From $198,000 to less than $208,000 |
Full: Less than $204,000 Partial: From $204,000 to less than $214,000 |
| Married, filing a separate tax return, lived with spouse at any time during the year | Full: $0 Partial: Less than $10,000 |
Full: $0 Partial: Less than $10,000 |
| Single, head of household, or married filing separately without living with spouse at any time during the year | Full: Less than $125,000 Partial: From $125,000 to less than $140,000 |
Full: Less than $129,000 Partial: From $129,000 to less than $144,000 |
Here’s how to use this table:
- Look up your tax filing status in the left column.
- Look at the relevant column for your intended tax year.
- If your MAGI is below the full amount, you can contribute up to 100% of your income or the Roth IRA contribution limit—whichever is less. The contribution limit in both 2021 and 2022 is $6,000, or $7,000 if you are over age 50.
- If your income falls within the partial range, subtract your income from the full level and then divide that amount by the phaseout range to determine the percentage of $6,000 that you are allowed to contribute.
If your income is above the upper limit of the range for partial contributions, you will not be able to contribute any money to your Roth IRA for that year.
If you have more than one IRA, or your income gets an unexpected boost, it’s easy to make the mistake of contributing more than the allowable maximum. Remember, the annual limit of $6,000 —or $7,000 including the catch-up provision—is for all your IRAs, not per account. Exceeding this limit can cost you a 6% penalty on the excess each year until you rectify the mistake.
Making Additional Contributions
If you earn too much to contribute to your Roth IRA, there are several ways you can still put money aside for retirement.
One way of doing this is to use a spousal Roth IRA. An individual may fund a Roth IRA on behalf of a spouse who earns little or no income. Spousal Roth IRA contributions are subject to the same rules and limits as regular Roth IRA contributions. The spousal Roth IRA is held separately from the Roth IRA of the individual making the contribution because Roth IRAs cannot be joint accounts.
Another way of getting around the Roth IRA’s income limitations is to instead contribute to a nondeductible IRA, which is available to anyone no matter how much income they earn. Just like a Roth IRA, this contribution is made with after-tax dollars, money that has already been taxed.
Then, using a tax strategy called a backdoor Roth IRA, you convert that money to a Roth IRA.
Can I Have Multiple Roth IRAs?
You can have multiple traditional and Roth IRAs, but your total cash contributions can’t exceed the annual maximum, and the IRS may limit your investment options.
What Is the Maximum Income Limit to Contribute to a Roth IRA?
If you file taxes as a single person, your modified adjusted gross income (MAGI) must be under $140,000 for the tax year 2021 and under $144,000 for the tax year 2022 to contribute to a Roth IRA.
If you’re married and file jointly, your MAGI must be under $208,000 for the tax year 2021 and under 214,000 for the tax year 2022.
What Happens if I Contribute to a Roth IRA Over the Income Limit?
The IRS will charge you a 6% penalty tax on the excess amount for each year you don’t take action to correct the error.
For example, if you contributed $1,000 more than you were allowed, you’d owe $60 each year until you correct the mistake.
The Bottom Line
Roth IRAs are a powerful tool for retirement investing, but they have limitations. Specifically, if you earn too much in a tax year, you will be barred from contributing to your Roth IRA for that year.
The IRS updates these income limits every year, so make sure you check them before contributing to your Roth IRA, or you may be charged a penalty.
If you earn too much to contribute to your Roth IRA, there are several options open to you. You can contribute to another Roth IRA on behalf of your married partner, or instead contribute to a nondeductible IRA, which has no income limits.