How to Calculate the Roth IRA Phase Out Contribution

The Roth IRA contribution limits are higher if you're 50 years old. In 2008, the limit for a person under 50 was $5000 and for those over 50, another $1000 adds to the limit for catch up. There's a point where the amount of your contribution reduces and then disappears. If your income is in that range, you can calculate the Roth IRA phase out yourself.

Difficulty: Moderate

Instructions

Things You'll Need:

• Modified adjusted gross income amount
• Phase out amounts for the year of calculation
• Contribution limits for the year of calculation
• Calculator

1. Check the limit. In order to contribute to a Roth IRA you must earn less than $169,000 if you are married but the phase out begins before that. The range of phase out for a single person is $101,000 to $116,000.

2. Find the amount of the phase out for you. For example, in the year 2008, if you're single, you'd subtract $101,000 from $116,000. The difference is $15,000.

3. Subtract your modified adjusted gross income from the upper amount of the Roth IRA phase out. An example of this is a single person earns $110,000 in 2008. The difference is $6000.

4. Divide the difference by the spread between the highest Roth IRA phase out number and the lowest. With the example above, the difference is $6000, figured in Step 3, which you divide by $15,000, figured in Step 2. The result is .4 or 40 percept.

5. Multiply the amount of contribution allowed by the decimal in the previous step. In the example, the taxpayer is under 50, so you multiply $5000 times .4 for a Roth IRA phase out contribution of $2000.

6. Round up to the next higher increment of $10 if the amount doesn't equal an even $10 increment. If the amount is less than $200 but not eliminated, use $200.

7. Check the IRS website to find what limits pertain to your tax year.

Resources

• IRS website for Roth limits