Roth IRA Contribution

With all the different types of retirement plans available; the rules surrounding each can become quite confusing, especially when it comes to contributions and distributions.  With this lesson, we will cover the Roth IRA contribution guidelines for individuals. 

The absence of an age restriction on the Roth IRA is nice benefit for those of you above the age of 70.5 and unable to invest in the traditional IRA.  Unfortunately not everyone is qualified to make Roth IRA contributions.  Participation is subject to Roth IRA limits on income that is earned by an individual or couple. 

Roth IRA Limits on Income For Single Filers


If you are single and your modified adjusted gross income (AGI) is below $105,000, you are eligible to make a contribution up to the Roth IRA contribution limit of $5,000 ($6,000 for individuals above 50 years of age).  However, for those of you who have a modified adjusted gross income (MAGI) between $105,000 and $120,000, you enter into the phase out range.  Within the phase out range, the Roth IRA contribution limit will be partial based on where you fall within that range.  You can use IRS worksheet 2-2 to determine what your reduced Roth IRA limit is.  When your MAGI is above the phase out range, you will no longer be eligible to contribute to a Roth IRA.

Roth IRA Limits on Income for Joint Filers


For those of you who are married and filing jointly; your combined AGI must be below $167,000 for both of you to make the full Roth IRA contribution.  The phase out range for joint filers is between $167,000 and $176,000 while filers above $176,000 will not be eligible for a Roth IRA.

Aggregate Contribution Limits


The annual Roth IRA limit of $5,000 is actually reduced by the amount of contribution that you make to a traditional IRA.  However, employer sponsored plans such as the 401k, or 403b do not affect your ability to make the full contribution.

Contributions to Conversion IRA


We will cover the Roth IRA conversion in another lesson; however, it is important to note that you can make your yearly Roth IRA contributions to a conversion Roth IRA account.  This will enable you to avoid the additional headache of managing two different accounts.  Additionally, if you converted a traditional IRA into a Roth IRA, you are still eligible to make your yearly contributions to your Roth account.

Tax Credits for Roth IRA Contributions


The government has offered a special tax credit to encourage individuals within lower income brackets to contribute to their retirement savings plan.  Tax credits can be issued up to $1,000 for single filers and up to $2,000 for joint.  Essentially, you will receive a credit of 10% to 50% for each dollar that you contribute, up to the limits stated above.

Roth IRA Contribution Credit
Using this table above, if you are married and filing jointly and have a MAGI of $33,000 and contribute $3,000 to your retirement account, you will receive a credit of $3,000 * 20%, or $600.


<< Part 1 - Roth IRA Overview
Part 3 - Roth IRA Conversion >>
Part 4 - Roth IRA Withdrawal >>
Part 5 - Distribution Ordering Rules >>
Part 6 - Recharacterization >>
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