Who Can Contribue to a Roth IRA?
Roth IRAs were instituted in 1998 to offer an alternative tax break to traditional IRAs and encourage savings for retirement. Instead of a tax deduction for contributions like a traditional IRA, Roth IRAs allow the money to be withdrawn tax-free at retirement.
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Income Limits
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Your modified-adjusted gross income (MAGI) must not exceed the annual limits for contributing to a Roth IRA. The 2009 limits are $120,000 for singles, $176,000 for joint filers and $10,000 for married individuals who file separately.
Phase-Out Range
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Each filing status has a MAGI phase-out range where the amount of money you can contribute to a Roth IRA decreases until you can no longer make any contribution to a Roth IRA. In 2009, the MAGI phase-out ranges are $105,000 to $120,000 for singles, $166,000 to $176,000 for joint filers, and $0 to $10,000 for married individuals who file separately.
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Income Minimums
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In order to contribute to a Roth IRA, you must have at least as much taxable income as your contribution. For example, if you $2,000 in taxable income, you can only contribute $2,000 even though the contribution limit for 2009 is $5,000 for people younger than 50 and $6,000 for people 50 and older.
Time Frame
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Your MAGI and taxable income amounts are based on the year that you are making the contribution. For example, if you are making a contribution for the tax year 2009, whether or not you qualify is based on the MAGI on your 2009 tax return (filed in early 2010).
Contributions to a Traditional IRA
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If you make contributions to a traditional IRA, that amount you can contribute to a Roth IRA will be reduced because the contribution limit applies to both. For example, if the contribution limit for IRAs is $5,000 and you contribute $5,000 to a traditional IRA, you cannot contribute any to a Roth IRA.
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