Roth IRA Maximum Contribution

What is the Roth IRA maximum contribution?

That's a great question, and you need to know the answer if you intend to make a contribution to your Roth IRA this year.

Even if you don't plan on maxing out your Roth IRA contribution in the upcoming year, it's important to know your limits. Otherwise, you might get slapped with surprise taxes or penalties from the IRS.

So what's the maximum dollar amount you're eligible to contribute to your Roth IRA?

Well, that depends...

Qualified Earned Income

Before you can make a Roth IRA contribution of even a single penny, you need to have earned income. This essentially means some sort of compensation from goods or services rendered.

Once you have earned income, your maximum Roth IRA contribution can NOT exceed the amount of money you earn in a calendar year.

For example, let's say you're a teenager working a part-time job at McDonald's. You earn $4,500 during the course of the year.

Most people under the age of 50 who earn less than the maximum limit can contribute a maximum of $5,000 per year to a Roth IRA.

But you can only contribute $4,500 to your Roth IRA.

Why?

Because you can't contribute more than you earn.

And since you only earned $4,500, your Roth IRA maximum contribution is $4,500.

But what if you earned $6,000 instead... What's your maximum limit then?

The same maximum limit as everyone else.

For someone under the age of 50 earning $6,000 per year, the maximum contribution is $5,000 and not a penny more...

If You're 50 Years Old or Older

Generally speaking, you're eligible to make a larger Roth IRA contribution if you're 50 years old or older.

Assuming you earn less than the IRS income limits for making a maximum Roth IRA contribution, you're eligible to make a Roth IRA max contribution of $6,000 per year.

So what are the income limits?

You can make the maximum $6,000 contribution if...

• You're single and earn at least $6,000, but no more than $107,000
• You're married filing jointly and earn at least $6,000, but no more than $169,000
• You're married filing separately and earn no more than $0

As long as your income doesn't exceed these limits, and you're over the age of 50, you can make a maximum Roth IRA contribution of $6,000.

For instance, let's say you turn 50 years old in the middle of the 2011 tax year. You're single and earn $96,500 per year.

How much can you contribute in the 2011 tax year?

Up to $6,000.

Why?

Because you're over 50 (as long as you turn 50 during the tax year, you qualify), and your earned income is below the $107,000 threshold for making the maximum contribution.

But what's the maximum amount you can contribute in the 2010 tax year?

$5,000.

Why?

Even though your income is below the threshold for making the maximum contribution, you haven't yet reached the age of 50, so your maximum Roth IRA contribution amount is $5,000.

If You're Younger Than 50 Years Old

If you don't reach the age of 50 sometime during the tax year in which you're making a Roth IRA contribution, the maximum contribution you can make is $5,000.

Absent highly unusual circumstances, that's the absolute maximum amount anyone under the age of 50 can contribute to a Roth IRA.

However, the same income limits apply.

You can make the maximum $5,000 contribution if...

• You're single and earn at least $5,000, but no more than $107,000
• You're married filing jointly and earn at least $5,000, but no more than $169,000
• You're married filing separately and earn no more than $0

For more information, read Roth IRA Income Limits.

For instance, let's say you're 45 years old, married, and you and your spouse have a combined income of $143,250.

Under IRS rules, you can make a Roth IRA maximum contribution of $5,000.

However, five years from now, when you turn 50, you maximum contribution goes up to $6,000.

The Roth IRA Income Limit

Unfortunately, not everyone is eligible to make the maximum contributions of $5,000 or $6,000.

Why?

Because the IRS places income limits on your ability to contribute to a Roth IRA.

What are the limits?

You're ineligible to contribute a single penny to your Roth IRA if...

• You're single and earn more than $122,000
• You're married filing jointly and earn more than $179,000
• You're married filing separately and earn more than $10,000

Unfortunately, if your earned income exceeds the IRS threshold, your Roth IRA maximum contribution is zero dollars...

For example, if you're married and earn a combined income of $160,000, you can contribute to your Roth IRA, but...

If you're single and earn $160,000, you can NOT contribute to your Roth IRA.

Why?

Because a single person making more than $122,000 is ineligible, but a married couple isn't ineligible until they earn $179,000 or more.

The Roth IRA Income Limit Phase Out

So what happens if your income lands you somewhere in between the threshold for making the maximum Roth IRA contribution and the threshold for being ineligible?

That's a great question.

And the answer is...

Your Roth IRA maximum contribution phases out.

Your Roth IRA maximum contribution limit phases out if...

• You're single and earn between $107,001 and $122,000
• You're married filing jointly and earn between $169,001 and $179,000
• You're married filing separately and earn between $1 and $10,000

Exactly where your income falls within the ranges outlined above determines how much you can contribute. If your income is within one of these ranges, read Roth IRA Phase Out to properly calculate your Roth IRA maximum contribution.

Conclusion

Your Roth IRA maximum contribution limit depends on two factors...

• Your age
• Your income level

Generally speaking, if you're under the age of 50, your maximum contribution limit is $5,000.

While if you're over the age of 50, your maximum contribution limit is $6,000.

Both of these ceilings lower as your income rises past the IRS threshold for making the maximum annual contribution.

So make sure you pay careful attention to your income as it relates to your tax filing status.