IRA Maximum Income Limits

Stick to the guidelines when you're saving for retirement with an IRA

The Internal Revenue Service (IRS) recognizes several types of Individual Retirement Accounts (IRAs). IRAs provide some hefty tax benefits to help you save for retirement. Traditional and Roth IRAs don't have minimum income requirements as long as your earned income is at least equal to what you contribute. However, the IRS does set maximum income limits for both traditional and Roth IRA accounts.

Identification

The IRA maximum income limits are set forth by the IRS as a set of phaseout rules. The phaseout rules are different for traditional and Roth IRAs. Your maximum income is your modified adjusted gross income (AGI). The exact limits that apply to you depend on your marital and filing status and whether you have a retirement plan where you work. The maximum limits are adjusted periodically and so may vary from year to year.

Traditional IRA

IRS phaseout rules for traditional IRAs apply to many taxpayers, but not all. If you fall into a category for which there is a phaseout, you have two income levels to consider. The lower level is the AGI at which the amount you may deduct begins to be reduced. The higher figure is the AGI at which the allowed tax deduction reaches zero. You can still contribute to the IRA. You just can't take a tax deduction for the contribution.

If you file single or as head of household and you are covered by an employer-provided retirement plan, the phaseout starts with an AGI of $56,000 and your allowed deduction is zero when your AGI reaches $66,000 (as of 2010). However, if you are not covered by a retirement plan at work and your filing status is single/head of household, there is no income limit.

For persons who are married but filing separately, phase out starts with the first dollar earned. When the AGI reaches $10,000 no contributions are deductible.

If you are married and filing jointly but neither you nor your spouse is covered by a retirement plan at work, there is no income limit to get the traditional IRA tax deduction. If you are covered by a work-related retirement plan the phaseout range starts at $89,000 and goes to $109,000. If your spouse has a retirement plan at work but you do not the phaseout range is $167,000 to $177,000 (all figures as of 2010).

Roth IRA

For Roth IRAs, the phaseout rules mean the amount you may contribute is reduced and eventually eliminated. For persons filing singly, the allowed contribution is reduced starting when the AGI reaches $105,000 and is entirely eliminated when the AGI reaches $120,000. If you file jointly, the figures are $167,000 to $177,000.

SEP/SIMPLE IRA

Employer provided Simplified Employee Pension (SEP) IRAs and Savings Incentive Match Plan for Employees (SIMPLE) IRAs do not have maximum income limits. You get the tax deduction up to your annual contribution limit regardless of your AGI.

Roth Conversions

Until 2010 you could not convert (roll over) funds from another type of retirement plan into a Roth IRA if your AGI exceeded $100,000. That rule was rescinded as of 2010. Phaseout rules also do not apply to conversions to Roth IRAs. As a result, you may roll over funds from a traditional IRA or other retirement plan regardless of how much your income is.

References

• MoneyZine: IRA Contribution LImits
• Good Financial Cents: 7 Things You Need to Know about the Roth IRA Rules for 2009
• IRS Publication 590: Traditional IRA
• IRS Publication 590: Roth IRA