Roth IRA Rules of Eligibility

By Kent Ninomiya

  • Overview

    The Roth IRA rules of eligibility dictate who can invest in a Roth IRA and how much an investor can contribute in any tax year. It is important to follow these rules since you can be fined or disqualified from investing in a Roth IRA if you violate any of them. Following the Roth IRA rules of eligibility can be difficult since the Internal Revenue Service (IRS) changes the details of the rules every year.
  • Contribution Money

    The Roth IRA rules of eligibility restrict contributions to money that comes from taxable compensation. This is income that was earned at a job and taxed in your paycheck or on your tax return. It can be money from an employer or through self-employment. It cannot be money from investment income. A taxpayer's Roth IRA eligible contributions are limited to their taxable compensation for the tax year or the contribution limit, whichever one is lower. If too much money is deposited into a Roth IRA, the IRS fines the account owner 6 percent every year until it is removed.
  • Income Limits

    The Roth IRA rules of eligibility allow taxpayers earning less than a set income to contribute the maximum amount to a Roth IRA. This amount changes periodically, so it is important to check with the IRS for specific tax years. In 2009 the income limit to make the maximum Roth IRA contribution was a modified adjusted gross income of $120,000 for those filing their tax returns as "Single," and $176,000 for those filing their tax returns as "Married filing jointly." Those filing tax returns as "Married filing separate" are not eligible for maximum Roth IRA contributions.
  • Contribution Limits

    The Roth IRA rules of eligibility allow taxpayers of different ages to contribute different amounts to their Roth IRAs. These amounts also change periodically, so it is important to check with the IRS for specific tax years. For 2008 and 2009, the maximum Roth IRA contribution is $5,000 for taxpayers less than 50-years-old. Taxpayers older than 50 are allowed to make "catch-up contributions" of $6,000.
  • Partial Contributions

    The Roth IRA rules of eligibility permit partial contributions for taxpayers falling into certain income ranges. Remember that these amounts change periodically, so consult the IRS for ranges in a specific tax year. For 2009, "Single" taxpayers with modified adjusted gross income between $105,000 and $120,000 could make partial Roth IRA contributions. The amount of the contribution is prorated depending on the exact income. The same is true for "Married filing jointly" taxpayers making between $166,000 and $176,000. If you file your tax returns as "married filing separate," you are not allowed to make partial contributions unless your income is less than $10,000.
  • Roth IRA Opening

    All of the preceding Roth IRA rules of eligibility assume that you already have an active Roth IRA account. If you don't, you must open one. This can only be done during tax years when you fall beneath the income limits. In 2009 those limits are $120,000 for "single" filing taxpayers, $176,000 for "married filing jointly" taxpayers. "Married filing separately" taxpayers are ineligible to open Roth IRAs. If a Roth IRA is being rolled over from a Traditional IRA, it must happen during a tax year when the modified adjusted gross income is less than $100,000.
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