The AGI Limit for Roth IRA Contributions
When you contribute to a Roth IRA account, you can build a nest egg that will provide you with a steady stream of tax-free income when you retire. But not everyone can contribute to a Roth IRA account, and it is important for all high-income taxpayers to check the current AGI limits before they invest.
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Single Limits
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If you are a single taxpayer, you can make your full Roth IRA contribution for 2011 as long as your total adjusted gross income for the previous year is less than $107,000. If you AGI comes in between $107,000 and $122,000, you can still make a partial contribution, but the amount you can put in is reduced as the amount of your income rises. If your AGI for the previous year was more than $122,000, you cannot contribute to a Roth IRA in 2011.
Married Couples
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For 2011, married couples can make the full contribution to their Roth IRA accounts as long as their combined adjusted gross income is less than $169,000. Couples with adjusted gross incomes between $169,000 and $179,000 can make a partial contribution, with the amount of the allowable contribution going down as income rises. Once a married couple crosses the $179,000 AGI limit, they can no longer make a contribution to a Roth IRA account.
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Excess Contributions
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The AGI limits for Roth IRA accounts are very important, especially for taxpayers who find themselves at or near those limits. Many people like to make their Roth IRA contributions at the beginning of each year to give the money more time to grow. But if you do that and are later found to have been ineligible, you face a tax on that excess contribution until you remove all of the money you invested, along with any earnings that money has made up until the day you withdraw it.
Advance Planning
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If you were close to the AGI limits for Roth IRA contributions in the previous tax year, it is essential to do a bit of advance tax planning before you make your contribution for the current year. You might already know how much you will make in wages for the coming year, but unknowns like capital gains, dividends and interest income could conceivably tip you over the AGI limits and make you ineligible for a Roth IRA. If there is any doubt at all about your eligibility, it is a good idea to keep that money in a savings account or money market until all of your income information is in and you are sure you can make a Roth IRA contribution.
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References
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