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I would like to make my Roth contribution for 2022 as early in the year as possible. There are contribution limits based on Adjusted Gross Income. None of the sources I've read made it clear if it's the AGI for the contribution year, or from the year before.

To be clear, if I'm contributing in 2022, is it the AGI from 2021 or 2022 that matters for my contribution limits?

I assume it is 2022, but if that's the case, how can I make my contribution early if I can't predict my AGI for 2022 in Jan 2022? My income is somewhat hard to predict.

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From 01 January 2022 to 15 April 2022 You can add money to your 2021 IRAs. You use your 2021 AGI to determine which accounts you can contribute to, and the deductibility of the contribution.

From 01 January 2022 until 15 April 2023 you use your 2022 AGI to determine which accounts you can contribute to, and the deductibility of the contribution.

If you know that your 2022 numbers will be close to the limits, then if you don't want to deal with the excess contribution rules you should wait until the 01 January 2023 to 15 April 20223 period to make your contribution. Waiting means that a unexpected bonus or larger than anticipated raise won't trigger unexpected camplications.

Many people are faced with this dilemma and just make the contribution in the first quarter of the next year. Others wait until the next year, so they can use their refund to partially fund their IRA.

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  • Right, I knew waiting was an option. But that loses a year in the market. Are there any other options that might optimize this better? It appears that I can also do a "backdoor" contribution. Would that be better than waiting?
    – pixelearth
    Commented Jan 10, 2022 at 17:03
  • @pixelearth I was going to suggest the backdoor route of putting money into a Trad IRA, NOT deducting that contribution when it comes time to file your 2022 taxes, and asking your institution to perform a conversion from Trad to Roth IRA. It will avoid these (current*) questions about MAGI and the like. Now, the *. Congress is debating versions of the BBB bill that removes this backdoor plan. It is possible that they pass and make this move illegal to do in 2022, even if you have already done so, forcing you to unwind it all. What I am personally doing is as suggested, waiting until 2023.
    – R. Hamilton
    Commented Jan 10, 2022 at 18:27
  • A second notable thing about backdoor conversion is that if you go that route, you cannot access those funds penalty-free for 5 years. In a direct Roth contribution, one can always pull that contribution back out (but none of any earnings it may have made) penalty free, because the income taxes have already been paid on it. But if the money flows into Trad IRA and then converted into Roth, it has to be seasoned in the Roth for 5 years before it can be withdrawn penalty free, or you have to be old enough to access all the account's money penalty free.
    – R. Hamilton
    Commented Jan 10, 2022 at 18:31
  • @pixelearth invest the $5k in a regular, taxable brokerage account (or pay down debt or add to your e-fund or "invest" in bulk discount purchases or do any of the many other things that will let your money make/save more money). In early 2023, use the money you would have put into your IRA for 2023 to instead retroactively contribute for 2022. In 2024, contribute for 2023. Ad infinitum.
    – stannius
    Commented Jan 11, 2022 at 17:41
  • Keep in mind that a Roth IRA is an account, not an investment. Just because you can't safely put the money in the account doesn't mean you have to lose a year in the market.
    – stannius
    Commented Jan 11, 2022 at 17:42
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It's for the applicable year of the contribution, meaning the current year of the prior year if you're making a contribution before April 15th to be applied to the prior year.

If, when you file your 2022 taxes next year, you end up over the contribution limit, you have several options to avoid penalties. You can withdraw the excess amount (and any associated earnings) before you file your taxes (or later, but you must file an amended return), you can apply the overcontribution to the next tax year, or you can recharacterize the excess over into a Traditional IRA.

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  • You can apply to next year only if/after you pay the 6% excise tax for the excess year. You can recharacterize to trad; that's not the same thing as a rollover, and saying 'rollover' to the custodian is likely to screw things up worse.
    – dave_thompson_085
    Commented Jan 12, 2022 at 2:47

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