How to Determine a Maximum Roth IRA Contribution

By Paul M. J. Suchecki

  • Overview

    The Roth IRA (Individual Retirement Account) was established in 1997 by Congress in the Taxpayer Relief Act. It's named for its principal sponsor, Senator William Roth of Delaware. The funds can be invested in securities, bank accounts and a wide range of instruments. In contrast to a traditional IRA, contributions are not tax-deductible.
    How to Determine a Maximum Roth IRA Contribution
    • Step 1

      Understand that the Roth IRA contribution must be from compensation you received that year. If you earn only $1,000 in a year, that's the most you can contribute to a Roth IRA for that tax year. If you have a traditional IRA in which the contributions are tax-deductible at the outset, the amount you contribute there must be subtracted from these Roth limits. They apply to all IRAs you might hold.
    • Step 2

      Know the history. For the tax years 1998 to 2001, the maximum contribution to a Roth IRA (irrespective of age) was $2,000. However, as of 2002, those who were 50 and older could start to contribute more. With the 2008 tax year, taxpayers under the age of 50 can contribute up to $5,000 a year, while those over 50 can contribute up to $6,000 a year. Under current legislation, the amount allowed is slated to increase by $500 a year to account for inflation.


    • Step 3

      Realize that the amount you can contribute is dependent on your modified adjusted gross income. If you're filing singly, you can contribute up to your full age-dependent limit, up to $99,000 in income. If your modified adjusted gross income is greater than $114K, you can contribute nothing to a Roth IRA. If you're filing jointly, you can take the full contribution up to $156,000 in your modified adjusted gross income. If your modified adjusted gross income is greater than $166,000, you can contribute nothing.
    • Step 4

      Determine your Roth IRA contribution if your modified adjusted gross income falls between a 100 percent contribution and 0. Start with your modified adjusted gross income. Subtract $156,000 from that figure if you're filing a return jointly. Subtract $0 if you're married, filing a joint return and have lived with your husband or wife during that tax year. Everyone else should subtract $99,000.
    • Step 5

      Divide the difference by $15,000. However, if you're filing a joint return; are a qualifying widow or widower; or are married, filing a return separately and have lived with your husband or wife at any time during the year; divide the difference by $10,000.
    • Step 6

      Multiply this quotient by the maximum contribution allowed for your age. Subtract this product from the maximum amount allowed. That difference gives you the maximum amount you can contribute.
  • Skill: Moderate
  • Tip: For additional information, see IRS Publication 590 in Resources.

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