How Much Can I Contribute to a Roth IRA?

The maximum Roth IRA contribution you can make is $5,000 for a single individual. For married couples, it is $8,000.

Qualification

Your status will depend on the modified AIG or Adjusted Gross Income. In addition, you must also have taxable compensation.

These pieces of information can be obtained when you file your tax returns. In addition, spouses can make contributions as well.

This is assuming the adjusted gross income is not exceeded.

Limits

As stated, the limit for an individual is $5,000. But if you are above 50 years of age you can add $1,000 more.

Bear in mind that the restrictions can be reduced. This is true if apart from Roth IRA contributions you make payments to a Traditional IRA.

However, this limitation does not apply when contributing to Simple IRA or SEP IRA. In addition, other plans sponsored by your employer are exempted.

Again your modified Adjusted Gross Income will be evaluated too. If your modified AGI is above the limit, the contribution restrictions are lowered.

Advantages and Benefits

There are numerous benefits to opening this account type. The biggest one is that as the money increases, it is free of tax.

The proper age for withdrawal is 59 years and a half. Withdrawing the money at that age makes it tax-free. This makes up for the fact that the initial contributions are not tax deductible.

You can also make contributions until you’re past 70. The minimum contributions are waived. If the funds are for beneficiaries, it is tax exempt.

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Important Rules

The Roth IRA contribution must not be more than the income you make. What this means is the following: if you make less than $4,000, your contribution can only be what you’re making.

Those over 50 years of age can put in $6,000. This comes from the additional $1,000 you can add. This rule is in effect for 2009. For 2010, the rules may be modified.

When analyzing the AGI, keep the following in mind: it cannot be over $169,000 for couples. If you are single, it cannot be over $116,000. If it is you are disqualified from making a Roth IRA contribution.

If your AGI is between $159,000 and $169,000 (joint) or $101,000 to $116,000 (singly) you can contribute. However, it will only be in limited amounts. The exact amount will be dependent on the range.

Difference from Traditional IRA

There are similarities between the two, but there are differences too. Traditional IRAs have low limits. Roth IRA is also not deductible. The main factor for choosing which is your retirement.

If you are years away from it. A Roth IRA is the ideal choice. If it’s close by, a Traditional IRA is the better option.

Also, remember that contributions to a Roth IRA are eligible for tax credits. And as stated, investments and compounding aren’t subject to tax. The same can’t be said for 401k and other IRA plans.

Basically, when you make a Roth IRA contribution, you are saving for your future. For young professionals, it’s a good choice.