Maximum Contribution for a Roth IRA
Making contributions to individual retirement accounts helps you take advantage of tax benefits for retirement savings. Knowing the maximum amount you are allowed to contribute to your Roth IRA annually is important, because contributing too much results in a 6-percent penalty. Your maximum contribution depends on the IRS, as well as your age, earned income, modified adjusted gross income and contributions to any traditional IRA.
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Annual Contribution Limit
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The IRS adjusts the annual contribution limit as needed for inflation. The IRS also permits an additional catch-up contribution for people age 50 and older that can adjust for inflation as well. For example, when Roth IRAs were introduced in 1997, the IRS only allowed a $2,000 contribution limit and no catch-up contribution. As of 2011, the IRS permits a $5,000 contribution and an additional $1,000 catch-up contribution.
Earned Income Requirements
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To contribute to a Roth IRA, you must have earned income. The IRS includes sources of money like wages or self-employment income. If your total earned income for the year does not exceed your annual contribution limit, your maximum contribution to a Roth IRA equals your total earned income. For example, if your annual contribution limit equals $6,000 and you have $3,910 in earned income, your maximum Roth IRA contribution can only be $3,910. No amount of unearned income, like interest or investment earnings, can make you eligible to contribute to your Roth IRA if you do not have any earned income.
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Maximum Modified Adjusted Gross Income
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The IRS also adjusts your maximum Roth IRA contribution for the year if your Modified Adjusted Gross Income exceeds the limits. The IRS sets both an absolute limit and a phase-out range for each filing status that adjusts each year. If your MAGI falls between the phase-out range and the absolute limit, you can still make a contribution to a Roth IRA, but it will be smaller than the standard annual limit. If your MAGI exceeds the absolute limit, you cannot contribute to a Roth IRA at all.
Traditional IRA Considerations
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Your maximum Roth IRA contribution is limited by any money that you contribute to your traditional IRA since the IRA contribution limit is cumulative for both traditional and Roth IRAs. For example, if your annual contribution limit for IRAs equals $6,000 and you put $500 in a traditional IRA, your maximum contribution for a Roth IRA would be $5,500.
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