What are the 2011 Roth IRA Income Limits?
A Roth IRA is a type of individual retirement arrangement (IRA). A taxpayer’s contributions to a Roth IRA are not tax deductable. However, income accrues tax free in a Roth IRA. Additionally, qualified withdrawals from a Roth IRA are tax free to the taxpayer.
Roth IRAs are not for everyone. Your modified adjusted gross income (AGI) must be below the limits set by Congress in order for you to make a contribution to a Roth IRA. If your AGI exceeds the income limit, then you are prohibited from making a Roth IRA contribution.
2011 Roth IRA income limits for joint returns
Married taxpayers filing a joint return, as well as qualifying widows or widowers, may make a full contribution ($5,000 or $6,000 if age 50 or older) to a Roth IRA if their AGI is less than $169,000. For example, Stan and Joyce are a married couple who file a joint tax return. Stan and Joyce’s AGI is $71,000. Stan and Joyce may make a full contribution to their Roth IRA.
If the taxpayer’s AGI is at least $169,000 but less than $179,000, then the taxpayer may make a reduced Roth IRA contribution. In order to calculate the reduced contribution amount, subtract $169,000 from the amount of the taxpayer’s AGI, and then divide the difference by $10,000. Next, multiply the resulting ratio times the maximum contribution amount. Then, subtract the resulting product from the maximum deduction. The difference is the reduced maximum contribution. For example, Steve and Linda are a married couple filing a joint return. Their AGI is $172,000. Steve and Linda’s maximum Roth IRA contribution is $3,500. ($172,000-$169,000=$3,000. $3,000/$10,000=.3. .3X$5,000=$1,500. $5,000-$1,500=$3,500).
If the taxpayer’s AGI is $179,000 or higher, then the taxpayer is prohibited from contributing to a Roth IRA. For example, John and Jana are a married couple filing a joint return. Their AGI is $415,000. John and Jana may not contribute to a Roth IRA.
2011 Roth IRA income limits for single taxpayers
Single taxpayers may make a full contribution to a Roth IRA if the taxpayer’s AGI is less than $107,000. For example, Joey is a single taxpayer. Joey’s AGI is $52,000. Joey is eligible to make a full contribution to his Roth IRA.
Single taxpayers whose AGI is at least $107,000 but less than $122,000, are eligible to make a reduced Roth IRA contribution. In order to calculate the reduced contribution amount, subtract $107,000 from the amount of the taxpayer’s AGI, and then divide the difference by $15,000. Next, multiply the resulting ratio times the maximum contribution amount. Then, subtract the resulting product from the maximum deduction. The difference is the reduced maximum contribution. For example, Bill is a single taxpayer. Bill’s AGI is $110,000. Bill’s maximum Roth IRA contribution is reduced to $4,000. ($110,000-$107,000=$3,000. $3,000/$15,000=.2. .2X$5,000=$1,000. $5,000-$1,000=$4,000).
Single taxpayers with an AGI of $122,000 or higher may not contribute to a Roth IRA. For example, Ronald is a single taxpayer. Ronald’s AGI is $199,000. Ronald is prohibited from contribution to a Roth IRA.
2011 Roth IRA income limits for married taxpayers filing separate returns
A married taxpayer who files a separate return is subject to the same limitations as a single taxpayer if the taxpayer did not live with his or her spouse at any time during the tax year. Therefore, a married taxpayer filing a separate return who did not live with his or her spouse during the tax year may make a full contribution to a Roth IRA if the taxpayer’s AGI is less than $107,000. Similarly, the taxpayer may make a reduced Roth IRA contribution if the taxpayer’s AGI is between $107,000 and $122,000. Finally, the taxpayer is prohibited from making a contribution to a Roth IRA if the taxpayer’s AGI is $122,000 or above.
However, if the married taxpayer filing a separate return lived with his or her spouse at any time during the tax year, then the taxpayer’s ability to contribute to a Roth IRA will be severely limited. A married taxpayer filing a separate return who lived with his or her spouse at any time during the tax year will be prohibited from contributing to a Roth IRA if the taxpayer’s AGI is $10,000 or greater. If the taxpayer’s AGI is between $0 and $10,000, then the taxpayer may make a reduced contribution to a Roth IRA. The reduced contribution amount is calculated in the same manner as the reduced contribution amount for a married taxpayer filing a joint return. The taxpayer may make a full Roth IRA contribution if, and only if, the taxpayer’s AGI is $0.
Conclusion
A Roth IRA is excellent retirement savings vehicle for many people. Roth IRAs are not for everyone. Congress has placed strict income limits on a taxpayer’s ability to contribute to a Roth IRA. Before making a contribution to a Roth IRA, a taxpayer needs to carefully consider whether the taxpayer’s AGI will subject the taxpayer to a limitation on the amount that the taxpayer may contribute to his or her Roth IRA.