What’s the Most You Can Earn to Invest in a Roth IRA?

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.

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 2022 and 2023.

Here’s how to use this table:

1. Look up your tax filing status in the left column.
2. Look at the relevant column for your intended tax year.
3. 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 2022 is $6,000 ($6,500 in 2023), or $7,000 ($7,500 in 2023) if you are over age 50.   
4. 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 the maximum that you are allowed to contribute.
   

If your income is above the upper limit of the range for partial contributions for a given year, you will not be able to contribute any money to your Roth IRA for that year.

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 instead tocontribute 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.

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.