Roth IRA Max: Is There a Limit to How Much I Can Put in my Roth IRA?

by kristine on November 18, 2010

A Roth IRA is an individual retirement account that is not taxed assuming you meet certain criteria.  IRAs were created in 1974 to allow taxpayers who didn’t have access to a retirement plan through work to save towards their retirement in a tax advantaged way.  Many changes to IRAs have occurred throughout the years, including the introduction of Roth IRAs in 1997.

Because IRAs and Roth IRAs have tax advantages, the IRS limits the amount that can be contributed to these accounts each year.  The Roth IRA max and the traditional IRA max are the same.  However, if you are contributing to both a Roth IRA and a traditional IRA, your total combined contributions cannot exceed the limits below.

There are actually two Roth IRA max limits you need to consider before making your contribution this year:

Roth IRA Max Contribution Amount

The most that can be contributed to a Roth IRA in 2010 is the lesser of:

  • $5,000 ($6,000 if you are age 50 or older), or
  • Your compensation (or earned income) for the year.

In general you must have earned income in order to contribute to a Roth IRA.  However, spousal IRAs (and spousal Roth IRAs) can be setup and contributed to for spouses who don’t work, as long as they meet the other criteria.

Here are a couple of examples to show you how the Roth IRA max rules apply:

Example 1 – Full contribution allowed for taxpayer with earned income:  Rick earned $30,000 in 2009.  He is under age 50, so he can contribute up to $5,000 to a Roth IRA for 2009.

Example 2 – Contribution limited for single taxpayer with earned income below the limit:  Rick was unemployed in 2010 and only earned $2,000 for the year.  His Roth IRA contribution is limited to $2,000.

Example 3 – Spousal Roth IRA for a stay-at-home mom: Rick is married and earns $30,000 per year; his wife is a stay at home mom who does not work.  Both Rick and his wife can open and contribute up to $5,000 (each) to a Roth IRA.

Note:  Compensation for determining whether you qualify to contribute to a Roth or traditional IRA includes the following:

  • Wages and salaries
  • Self employed income
  • Commissions
  • Military differential pay and nontaxable combat pay
  • Alimony and separate maintenance payments received

Roth IRA Max:  What is the most you can earn and contribute to a Roth IRA?

Not only is the amount that can be contributed to a Roth IRA limited, you are also limited based on the amount of income you earn.  Following are the phase-out ranges for determining the Roth IRA maximum contributions you can make.  If you are within the range, your contribution will be reduced; if your income is above the range, you will not be allowed to make a Roth IRA contribution for that year:

  • $167,000-177,000 for taxpayers filing married filing jointly or as a qualified widow(er),
  • $105,000-120,000 for taxpayers who file as single, head of household and married filing separately (if you did not live with your spouse at any time throughout the year),
  • The income phase-out range is $0-10,000 if you are filing married filing separately and you lived with your spouse at any time during the year.

Worksheets are provided on the IRS website to help you determine your allowable contribution when your modified adjusted gross income is inside the phase-out ranges listed above.

Deadline for Contributions

Contributions to a Roth IRA must be made by the due date of your tax return.  For example, contributions for 2010 must be made by April 15, 2011 to count for 2010.  Contributions can be made anytime during the year as long as they are in by the deadline.  Make sure you pay attention to the date you make your contributions to ensure that you don’t exceed the Roth IRA max for the year, especially if you are making automatic monthly contributions.  Since you can make contributions up to April 15, if you don’t confirm the taxable year you are contributing for, you could exceed the Roth IRA max for that tax year.

Conversions to a Roth IRA

You may also contribute to a Roth IRA by converting amounts from a traditional IRA.  Roth IRA conversions are subject to a completely different set of rules and therefore will be discussed in a separate article.

I hope you found this article helpful.  It’s important that you understand the Roth IRA max contributions and other rules before you invest to avoid penalties.

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