How Does the Roth IRA Phaseout Limit Work
Roth IRA phaseouts are the income levels at which your contribution to your Roth can be reduced or eliminated completely. With a Roth IRA, you fund your account with after-tax dollars, meaning there is no upfront tax deduction in the year of your contribution. Roth IRAs provide some other helpful benefits, including:
The ability to receive distributions tax-free during retirement. Your earnings grow tax-free. There are no required minimum distributions (RMDs) with Roth IRAs.
You can withdraw your contributions at any time, including before age 59½. However, your earnings can’t be withdrawn penalty-free until the account is at least five years old and you’re at least age 59½.
Roth IRA Contribution Limits
In 2022, you can contribute $6,000 annually and $7,000 if you’re age 50 and older. In 2023, you can contribute $6,500, and if you’re age 50 and older, you can contribute $7,500. You can make a contribution for the prior year until April 15 of the following year unless it falls on a week or holiday, then it gets extended. For example, a person contributing for their 2022 tax year has until April 18, 2023, to make that contribution. Because you should have a clearer picture of your 2022 modified AGI in early 2023, you can then contribute up to the limit the Roth IRA phaseout allows for your particular income.
Roth IRA Maximum Income Limits
Roth IRAs were not created for high-income earners. For 2022, no individual making $144,000 or more in MAGI or a couple jointly filing making $214,000 or more can contribute to a Roth in the year that they reach or exceed those amounts of income. In 2023, you can only make $153,000 as a single filer and $228,000 if you’re married and filing jointly to be able to contribute to a Roth. To see where your income falls among these limits, you’ll first need to calculate your modified AGI, figured as part of your tax return. It will include some of the IRS’ adjustments to income, such as contributions to other retirement accounts.
Roth IRA Income Phaseout Limits
IRS rules dictate that taxpayers can contribute a partial amount to a Roth IRA for the year if their income falls within the income phaseout ranges. 2022 If you’re a single taxpayer, you are ineligible if you earned $144,000 or more, but you can make partial contributions if you earned between $129,000 and $144,000. For married taxpayers who file jointly, you can’t contribute if you earned more than $214,000, but you can make partial contributions if your income was between $204,000 to $214,000. 2023 Single taxpayers can’t contribute to a Roth if they earned $153,000 or more but can make partial contributions if they earned between $128,000 and $153,000. For married taxpayers who file jointly, you can’t contribute to a Roth if you earned more than $228,000, but you can make partial contributions if your income was between $218,000 to $228,000. Calculating Your Eligible Contribution Amount If your modified AGI was within the Roth IRA phaseout limits, you need to calculate an amount between $0 and the maximum $6,000 contribution limit for 2022 (or $6,500 for 2023) that is appropriate for you to contribute to a Roth IRA. The process begins with subtracting either $204,000 if filing jointly or as a qualifying widow or widower or $129,000 as an individual from your modified AGI in 2022. Then divide that result by either $15,000 for individuals or $10,000 for filing jointly/qualifying widow/widower. You multiply the fraction that results by $6,000—the 2022 maximum contribution limit for people under age 50—and subtract the result from $6,000, yielding your partial contribution amount.
Example of a Roth IRA Phaseout Limit
Let’s say you are a single taxpayer making $135,000 as your modified AGI in 2022. In that year, the Roth IRA phaseout limits apply to single taxpayers if they make $129,000 or more but less than $144,000 per year. The phaseout limit for your Roth IRA would be calculated this way:
Subtract $129,000 from your income, yielding $6,000 ($135,000 - $129,000).Divide that number by $15,000, resulting in the number 0.4 ($6,000 / $15,000).Multiply this number by the individual Roth IRA limit for someone under age 50 for that year, $6,000, yielding a result of $2,400 ($6,000 * 0.4).Lastly, subtract $2,400 from $6,000 to arrive at the result of $3,600, which at $135,000 modified AGI, is the amount you can contribute to your Roth IRA for the tax year 2022.
What It Means for Individual Taxpayers
In practice, most people won’t fall into the narrow band of income where Roth IRA phaseouts happen most years, but if you’re close, you may want to talk to your tax preparer about optimization strategies. If you are prioritizing Roth IRA contributions, making an HSA contribution could help you make a maximum Roth IRA contribution, even if you’d be in the phaseout zone without doing so. Another practical result for individual investors is that sometimes one’s modified AGI ends up higher or lower than expected after you chose to make earlier Roth IRA contributions. If you contributed more than your maximum in a given tax year, those contributions do accrue tax at a 6% rate per year, but they stop accruing this extra tax when you withdraw your excess contributions and any income you earned on them. Because calculations from year to year can be tricky, it might be better to wait until your full compensation and tax picture becomes clear at the beginning of the next year. Also, consider consulting a tax professional if you need help determining your eligibility. The maximum income limit for married taxpayers who file jointly is $214,000, and partial contributions are allowed if your income is between $204,000 to $214,000. For 2023, single taxpayers can’t contribute to a Roth if they earned $153,000 or more but can make partial contributions if they made between $128,000 and $153,000. For married taxpayers who file jointly, the maximum income is $228,000, but if your income is between $218,000 to $228,000, you could make partial contributions.
