Roth IRAs & Maximum Salary
Roth IRA accounts are one of several tax-advantaged methods of saving for retirement. However, with these advantages come restrictions. Certain taxpayers may be ineligible to contribute funds to a Roth IRA due to IRS income limitations. However, taxpayers who make too much to contribute to a Roth IRA may be eligible to convert a traditional IRA to a Roth IRA.
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Benefits
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A Roth IRA provides no upfront income tax deduction for contributions made into the account. However, all growth inside the Roth IRA occurs tax-deferred, and once the account holder reaches the age of 59 1/2, all withdrawals from a Roth IRA are tax-free.
Income Limits
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Unlike traditional IRA accounts, Roth IRAs have income limits that stipulate who is eligible to contribute to a Roth IRA. Single taxpayers with a modified adjusted gross income, or MAGI, over $120,000 may not contribute to a Roth IRA. Taxpayers who are married and filing jointly may not make Roth IRA contributions if their MAGI is greater than $177,000.
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Income Phaseouts
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Married taxpayers who have a MAGI above $167,000 but under $177,000 may make a partial or reduced contribution to a Roth IRA. Likewise, single taxpayers with MAGI between $105,000 and $120,000 may make a partial Roth IRA contribution.
Roth Conversion Income Limits
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Prior to 2010, taxpayers with incomes above $100,000 were not eligible to convert a traditional IRA account to a Roth IRA account. However, in 2010 and beyond, that limitation has been removed and now taxpayers of all income levels may convert IRAs to Roth IRAs.
Considerations
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Roth IRA contributions can be withdrawn at any time tax-free. However, all gains from the account are subject to a 10 percent penalty and ordinary income taxes if withdrawn before age 59 1/2.
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