Roth IRA Contributions
What are the IRS rules regarding Roth IRA contributions?
If you plan on contributing to your Roth IRA this year, you need to know those rules or else you risk making an excess or illegal contribution.
So what do you need to know?
Before contributing to your Roth IRA, you need to know your...
You also need to remember that contributions can only be made with after-tax earned income.
That means you need compensation income in order to make a contribution. Social security payments, disability payments, pension benefits, bank interest, and stock dividends do NOT qualify as earned income.
Because you did not earn those benefits in the current tax year. Instead, compensation income you received in the past resulted in those benefits.
As a general rule, if you offer your labor or brain power in order to provide a product or service for someone else, the compensation you receive qualifies as earned income.
Let's take a look at some of the additional restrictions applicable to Roth contributions...
The IRS places strict limits on your annual Roth IRA contributions.
And both your age and your Modified Adjusted Gross Income (MAGI) determine exactly what those limits are.
For instance, as long as you don't exceed the earned income threshold for your tax filing status, you can contribute a maximum of...
See Income Limits for more information on how your income level impacts your ability to contribute.
You can NOT contribute more money to your Roth IRA than you receive in compensation for the tax year.
For example, let's say you're a teenager in high school. You work a summer job and make $4,000.
Even though most people under the age of 50 are able to make a maximum of $5,000 per year in Roth IRA contributions, you can only contribute $4,000.
Because you can't contribute more than you earn. In this case, in order to contribute the full $5,000, you need to earn an additional $1,000.
The maximum contribution anyone can contribute to a Roth IRA is $6,000.
But, of course, not everyone qualifies to contribute this much.
In fact, the maximum contribution varies for each individual.
The determining factors in your maximum contribution are your...
Assuming you have earned income to contribute, nothing else matters.
Generally speaking, those over the age of 50 can contribute a maximum of $6,000 per year, while those under the age of 50 can contribute a maximum of $5,000 per year. Both of those maximum limits phase out to zero depending on your income range and tax filing status.
Which, of course, means...
Yes, your maximum contribution limit phases out as your income rises.
1) If you're married filing jointly - You can make the maximum contribution until the point at which your combined income equals $169,000. Your maximum contribution hits zero when your combined income hits $179,000. Between $169,000 and $179,000, your contribution limit phases out.
2) If you're single, head of household, or married filing separately (and did NOT live with your spouse for any portion of the tax year) - You can make the maximum contribution until you earn $107,000. Your maximum contribution hits zero when your income rises past $122,000. Between $107,000 and $122,000, your contribution limit phases out.
3) If you're married filing separately (and did live with your spouse for any portion of the tax year) - You can make the maximum contribution as long as you earn $0. However, your maximum contribution amount hits zero once your income exceeds $10,000. Between $0 and $10,000, your contribution limit phases out.
If your income is within the phase out ranges for your tax filing status, then your maximum Roth IRA contribution falls somewhere between $5,000 or zero (if you're under 50) and $6,000 or zero (if you're over 50).
For more specifics on where you stand, please read Roth IRA Phase Out.
Can you make Roth IRA catch up contributions when you get older?
Yes. In order to help you close the gap between your impending retirement and a sufficient retirement savings nest egg, the IRS allows people over the age of 50 to make an additional $1,000 annual contribution above and beyond the normal maximum applicable contribution.
For instance, let's say you're 52 years old and earn $112,500 per year. A person with the same income level under the age of 50 can make a maximum annual contribution of $2,500.
But since you're over the age of 50, you can make a maximum contribution of $3,500.
What's the deadline for making a Roth IRA contribution?
You can make a contribution for any tax year up until April 15th of the tax year that follows.
Find that hard to follow?
Let's look at an example...
Let's say it's 2011, and you're eligible to make a maximum annual Roth IRA contribution of $5,000. During the course of 2011, you make contributions totaling $4,000. In March 2012, you receive a $1,000 income tax refund...
Can you make a 2011 contribution using your $1,000 refund?
As long as you make the contribution by the April 15th 2012 deadline, you can still max out your Roth IRA contribution for the 2011 tax year.
A wide array of rules apply to your Roth IRA contributions, but your ability to contribute depends mostly on how much you earn and how you earn it.
But once you determine you're able to contribute, factors such as age, income level, and the timing of your Roth IRA contribution impact how much you can contribute and in what tax year.
So make sure you understand the contribution rules and how they apply to you.
Additional Information on Roth Contributions
What are the 2014 contribution limits? Is it true that income limits for making a Roth IRA contribution disappeared in 2010 and never reappeared? Knowing the facts can save you thousands of dollars and countless of hours of unnecessary aggravation. So take the time to learn the 2014 contribution rules.
What are the 2015 contribution limits? They aren't the same as the 2014 contribution limits, so if you haven't looked at IRS Publication 590 in a while, odds are the figures have changed.
What are the 2016 Roth IRA contribution limits? While it's still too early to make a contribution, it's never too early to start planning ahead.
Read 5 Reasons Why I Love My Roth IRA, our part in the Good Financial Cents Roth IRA Movement!
Our family fully funds our Roth IRA with this website. Learn how you can do it too.
Are you confused or frustrated by the stock market? Learn how to build real wealth selecting individual stocks for your Roth IRA...
Read more about what's new on the Roth IRA blog.
Hi, I'm Britt, and this is my wife, Jen. Welcome to our Roth IRA information website!
This is our humble attempt to turn a passion for personal finance into the Web's #1 resource for Roth IRA information. But, believe it or not, this site is more than just a hobby. It's a real business that provides a stable and steady stream of income for our family. In fact, because of this site, Jen is able to be a full-time stay-at-home mom and spend more time with our daughter, Samantha.
But you want to know the best part? ...You can do the same thing! Anyone with a hobby or a passion (even with no previous experience building a website) can create a profitable site that generates extra income.
If you're tired of solely depending on your job(s) for family income, click here now and learn why our income is increasing despite the financial crisis and how we're making our dreams come true.
Search This Site
Roth IRA Basics
More About Roth IRAs
Roth IRA Resources
About Your Roth IRA
Like Us On Facebook
Follow Us On Twitter
[?] Subscribe To
The information contained in Your Roth IRA is for general information purposes only and does not constitute professional financial advice. Please contact an independent financial professional when seeking advice regarding your specific financial situation.
Our family started this site as a labor of love in February 2009, a few months after our daughter was born.
Thank you for helping it become one of the most visited Roth IRA information sites.
We hope you find what you're looking for and wish you much continued success in your retirement planning!