You NEED to know what your Roth IRA Contribution Limits are each and every year. Without knowing this, you will either under fund your IRA which may result in financial uncertainty, or you may contribute too much to your account which will result in fines. This article has all the information you need about your Roth IRA and will help you get the maximum benefit from your retirement account.
Roth IRA Contribution Limits Factors
There are 3 main factors that you will be assessed by when contributing to your Roth IRA; these are: your age, filing status, and your modified adjusted gross income.
Factor 1: Age
There are only two different categories for age in regards to your Roth IRA contribution limits, which are under 50, and over 50. If you are over 50, your potential maximum contribution will be larger than if you are under 50, it's a way to let people 'catch-up' if they got a late start to retirement savings. As of 2011, your maximum contribution is $6,000 if you are over 50, but only $5,000 if you are under 50.
Factor 2: Modified Adjusted Gross Income (MAGI)
Your MAGI is often referred to as your taxable income when discussing IRAs, and will need to be calculated in order to determine your maximum contribution.
In order to calculate your MAGI you will have to use your 1040 or 1040A tax form, a more thorough guide to determining your MAGI is given in the following article about Roth IRA Income Limits.
Once you have determined your MAGI, you will have to see what bracket you fall into. Every year the specific dollar amounts change, but here is the general structure:
Under $XXX,000: If you make less than this amount, no limitations will be placed on you, your maximum contribution will be based on age and filing status.
In-between $XXX,000 - $YYY,000: In this range which is between the lower and upper bounds, you are still allowed to make a contribution, but it will be a reduced amount.
Over $YYY,000: Finally, if you have a very significant income, you are not permitted to contribute at all to your Roth IRA, however, this does not mean that you can't contribute to your other retirement accounts.
Factor 3: Filing Status
This factor takes into account the status you put down when you file your taxes for the year. You have the option of putting whichever one of the four statuses down that fit your circumstances, all of which will affect your contribution limits differently.
Single or Head of Household: If you file as single/head of household, no limitations will be imposed on your maximum contribution; this is the ideal case when looking specifically at your retirement savings.
Married filing jointly: In order to file jointly and married, you will have to look at a different set of standards regarding your MAGI than presented above. You will be required to add both of your MAGI's together in order to get a combined taxable income amount. Once you have this amount, there will be a new set of income brackets that will determine your contribution amount.
Married filing separately: This is by far the most restrictive category when filing your taxes. You fall under this category if you have lived with your spouse at any time during the year in question; if you did not live together at all, you are permitted to file as 'single'. As of 2011, the income brackets for someone married but filing separately are:
MAGI between $0 - $10,000: Reduced contribution
MAGI over $10,000: No Contribution Allowed
As you can see, if you have a fulltime income it is very unlikely you would be able to contribute at all. The reason for this restriction is so people can't 'cheat' the system and try to file as single when they're married in order to contribute more, it's just unfortunate that this is the only way to ensure that.
Summary
This is a general overview of what affects your Roth IRA Contribution Limits; I encourage you to read whatever topics are of interest to you on this site, they will have much more specific details to their years.
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