A Roth IRA is a type of individual retirement arrangement (IRA). Contributions to a Roth IRA are not tax deductible; however, all qualified withdrawals from a Roth IRA are tax free. The major advantage of a Roth IRA is this ability to receive tax free withdrawals in the future.

Not everyone may contribute to a Roth IRA. In order to contribute to a Roth IRA, the contributor’s modified adjusted gross income (AGI) must be below certain levels. These income levels effectively create 3 categories of potential contributors: (1) those contributors who may make a full contribution to a Roth IRA, (2) those contributors who may make a partial contribution a Roth IRA, and (3) those individuals who are prohibited from contributing to a Roth IRA. The amount of the income limit depends upon the contributor’s tax filing status.

Phase out of Roth IRA contributions for single contributors

Single taxpayers (and married, filing separately taxpayers who did not live their spouse at any time during the year) may make a full contribution ($5,000 or $6,000 if age 50 or older) to a Roth IRA if the taxpayer’s AGI is less than $107,000. 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, Stephen is a single taxpayer. Stephen’s AGI is $110,000. Stephen’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.

Phase out of Roth IRA contributions for married, filing jointly, contributors

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. 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 contributionamount, 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.

Phase out of Roth IRA contributions for married, filing separately, contributors who lived with their spouse during the year

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 by dividing the amount of AGI by $10,000 and then multiplying that quotient times the maximum contribution amount. Then, subtract the resulting product from the maximum contribution amount to get the reduced maximum contribution amount. For example, Sandra is married and files a separate tax return. Sandra lived with her spouse during the tax year. Sandra’s AGI is $4,000. The maximum amount that Sandra may contribute to a Roth IRA is $3,000 ($4,000/$10,000=0.4. 0.4X$5,000=$2,000. $5,000-$2,000=$3,000). The taxpayer may make a full Roth IRA contribution if, and only if, the taxpayer’s AGI is $0.