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Overview
The Roth IRA catch-up contribution rules were designed to let taxpayers over 50 years old make up for lost investing time. Since taxpayers over 50 years old are closer to retirement age, they are given the opportunity to put more money into a tax-sheltered retirement account than younger taxpayers who have more time to save. This higher Roth IRA contribution limit for older investors is called a "catch-up contribution."
Origins
Roth IRA catch-up contribution rules did not exist until 2001, when congress passed the Economic Growth and Tax Relief Reconciliation Act. The rules went into effect in the 2002 tax year. Taxpayers over 50 years old were permitted higher catch-up contribution limits than taxpayers younger than 50 years old.
Contributions
The Internal Revenue Service established the Roth IRA catch-up contribution limit for 2008 and 2009 at $6,000. This is $1,000 more than the contribution limit for younger taxpayers. This amount was an increase over 2007, when the limit was $5,000. Before that, the Roth IRA catch-up contribution limit was $5,000 in 2006, $4,500 in 2005 and $3,500 between 2002 and 2004.
Limit Increases
The IRS regularly increases the limits on Roth IRA catch-up contributions. It has happened four times since Roth IRA catch-up contributions were created in 2001, and it is expected to happen regularly in the future. The amount that the limits are raised is indexed with inflation and announced the year before they take effect. The Roth IRA catch-up contribution limit is always higher than the contribution limits for younger taxpayers.
Restrictions
Some taxpayers over the age of 50 years old are not allowed to make Roth IRA catch-up contributions. In 2009, single taxpayers with modified adjusted gross incomes over $120,000 and married filing jointly taxpayers making more than $176,000 are ineligible for Roth IRA catch-up contributions. All taxpayers of married filing separately status are ineligible. Partial Roth IRA catch-up contributions are allowed for single taxpayers earning between $105,000 and $120,000, and married filing jointly taxpayers earning between $166,000 and $176,000. Roth IRA catch-up contributions can be made only with taxable earned income. You cannot contribute more to a Roth IRA than you made during the tax year.
Age Benefit
The Roth IRA catch-up contribution rules permit taxpayers to keep on making deposits no matter how old they are. This is a significant difference between Roth IRAs and traditional IRAs. Traditional IRAs require that taxpayers stop all contributions once they reach the tax year when they turn 70 1/2 years old. Traditional IRAs also require mandatory distributions the following year. Roth IRAs have no such requirement. This is a tremendous benefit for older investors who want to continue saving past retirement age.
