You need to review what your Roth IRA Contribution Limits are each and every year. Without knowing this, you will either under fund your IRA which may result in financial uncertainty, or you may contribute too much to your account which will result in fines. This site has all the information you need about your Roth IRA and will help you get the maximum benefit from your retirement account.
If you are new to contribution limits or IRAs in general or want a quick refresher I suggest you keep reading the next section looking at the three important factors that affect your limits. Also, feel free to check out our articles on What is a Roth IRA and Roth IRA Rules to get a little more background. However, if you would like to skip ahead to a specific year feel free to do so now:
You may find the following articles useful as well to learn more about your IRA:
- Roth IRA Withdrawal Rules
- The Little Known Roth Tax Credit
- The 401k vs. Roth IRA Comparison Revisited
Roth IRA Contribution Limits Factors
There are 3 main factors that you will be assessed by when contributing to your Roth IRA; these are: your age, filing status, and your modified adjusted gross income (MAGI). You will often hear about Roth IRA Income Limits, which are essentially the same as your contribution limits.
Factor 1: Age
There are only two different categories for age in regards to your Roth IRA contribution limits, which are under 50, and over 50. If you are over 50, your potential Roth IRA maximum contribution will be larger than if you are under 50, it’s a way to let people ‘catch-up’ if they got a late start to retirement savings. As of 2011, your Roth IRA maximum contribution is $6,000 if you are over 50, but only $5,000 if you are under 50.
Factor 2: Modified Adjusted Gross Income (MAGI)
Your MAGI is often referred to as your taxable income when discussing IRAs, and will need to be calculated in order to determine your maximum contribution.
Once you have determined your MAGI, you will have to see what bracket you fall into. Every year the specific dollar amounts change, but here is the general structure:
Under $XXX,000: If you make less than this amount, no limitations will be placed on you, your maximum contribution will be based on age and filing status.
In-between $XXX,000 – $YYY,000: In this range which is between the lower and upper bounds, you are still allowed to make a contribution, but it will be a reduced amount.
Over $YYY,000: Finally, if you have a very significant income, you are not permitted to contribute at all to your Roth IRA, however, this does not mean that you can’t contribute to your other retirement accounts.
Factor 3: Filing Status
This factor takes into account the status you put down when you file your taxes for the year. You have the option of putting whichever one of the four statuses down that fit your circumstances, all of which will affect your contribution limits differently.
Single or Head of Household: If you file as single/head of household, no limitations will be imposed on your Roth IRA maximum contribution; this is the ideal case when looking specifically at your retirement savings.
Married filing jointly: In order to file jointly and married, you will have to look at a different set of standards regarding your MAGI than presented above. You will be required to add both of your MAGI’s together in order to get a combined taxable income amount. Once you have this amount, there will be a new set of income brackets that will determine your contribution amount.
Married filing separately: This is by far the most restrictive category when filing your taxes. You fall under this category if you have lived with your spouse at any time during the year in question; if you did not live together at all, you are permitted to file as ‘single’. As of 2011, the income brackets for someone married but filing separately are:
MAGI between $0 – $10,000: Reduced contribution
MAGI over $10,000: No Contribution Allowed
As you can see, if you have a full time income it is very unlikely you would be able to contribute at all. The reason for this restriction is so people can’t ‘cheat’ the system and try to file as single when they’re married in order to contribute more, it’s just unfortunate that this is the only way to ensure that.
The reason for a phase-out range is because if there was a hard cut-off, people who might fall a few dollars over the limit would not be able to contribute at all, but if they made a few dollars less could contribute the full amount. This isn’t a very fair way of doing this, which prompted the concept of a phase-out range.
The phase-out range can be a tricky concept so I decided to make a video explaining it. If you can’t watch the video I included a written explanation a bit further down.
As mentioned in the video here is the spreadsheet: phaseout spreadsheet (right click -> save link as…)
The range is proportionate to your contribution limit, so the higher you are in the phase-out range, the less you will be able to contribute. Let’s walk through a hypothetical and exaggerated example to make this clear.
Question: “Bob is 45 years old, single, and his MAGI is $17,500. The Phase-out range for this year is $10-20,000. How much can he contribute?”
Answer: Since Bob is 45 and single he can contribute up to $5,000. He falls in the phase-out range with his MAGI however, which means he can’t contribute that full amount. To determine how much he can contribute let’s do a few simple calculations:
His income (17,500) is ¾ of the maximum limit of $20,000. This means his contribution will be reduced by three quarters of the maximum contribution. 0.75*5,000=3,750. This is the amount his maximum contribution will be reduced by.
Therefore, Bob can contribute 5,000-3,750, which is equal to $1,250 for the year.
If this is still confusing please leave a comment at the bottom of the page and I will do my best to clarify it better.
I always advise everyone to read up on Publication 590 that the IRS updates every year, as this is where they will officially publish the updates in the new year for everything regarding your Roth IRA (Not updated until 2013). However, it isn’t really well organized or explained in certain areas, which is why I update these posts so you can get the information you want without all the bureaucratic jargon.
If you are over 50 years old you can contribute a maximum of $6,500 in 2013, and up to $5,500 if you are under 50; see below to find out if you can contribute the maximum or not.
Show Me the Numbers!
Below is the summary of the 2013 Roth IRA Contribution limits, there is one bullet point attributed to each tax filing status: married and filing jointly, single/head of household, and married but separated.
If you are married and filing jointly, the limits have gone up once again in 2013. The lower limit is now $178,000, and the upper limit is now $188,000. If your Joint MAGI is under the lower limit you can contribute the maximum, but if you are over the upper limit you can’t contribute at all.
For anyone filing single, your income limits have also risen. The lower limit is now $112,000, so if your MAGI is less than that you can contribute the maximum. If you are over the maximum limit of $127,000 you cannot contribute, but if you are between these numbers you can still contribute, but a reduced amount.
Finally, if you are married but separated the limits have stayed the same. If your MAGI is over $10,000 you are prohibited from depositing any money, and if you make less than this you can only contribute a reduced amount.
Typically there are small changes every year in regards to the factors that determine your contribution limits, and the changes for 2014 will be addressed in this section. Your contribution limits have changes that are a reflection of the current economic market which factors in many dynamic variables such as inflation. The changes usually affect the income ranges that influence your eligibility to make your Roth IRA maximum contribution so it is important to learn about the changes.
As of now the IRS have not released any information pertaining to Roth IRAs in 2014. Remember that for any contributions that you make before April 15 in 2014 will be based off of the 2013 contribution limits, because you’re making contributions for that year. You can find all the information for that from the section above.
This post will be updated immediately after any updates from the IRS are released, so make sure to bookmark it and check back near the end of the year to get the latest information on your Roth IRA contribution limits in 2014.
Final Notes and Remarks
This is an in-depth overview of what affects your Roth IRA Contribution Limits; I encourage you to read whatever other topics are of interest to you on this site, because your IRA is much more than just a simple savings account. If you want information on Traditional IRAs feel free to visit Forbes.