Roth IRA Contribution Limits

In this publication we're going to discuss the Roth IRA Contribution Limits.   That discussion will include the recent changes that affect Roth IRA accounts in 2007 and 2008.  As far as the information we're going to provide, we'll address the two kinds of Roth IRA limits - one dealing with income restrictions and the other dealing with the contributions themselves.

Roth IRA Eligibility Rules

If you're planning on contributing to your Roth IRA, just be aware the Federal government has set limits on both income and contributions.  To start with, the only requirement, or eligibility rule, for contributing to a Roth IRA is that you have been paid some kind of compensation.  This can be in the form of wages, salaries, tips, professional fees, and even bonuses.

The compensation rule is the only qualifying rule for Roth IRAs.  Unlike traditional IRAs, you can be of any age and still contribute to a Roth IRA.  You can also make a contribution to a Roth IRA at any time for a particular calendar year up until the due date of your return for that year.  This means that if you want to make a Roth IRA contribution for 2007, you could make it anytime between January 1, 2007 and April 15, 2008.

Another nice feature of the Roth IRA is that your spouse can also qualify for a contribution.  Contributions can be made even if your spouse has little or no compensation - as long as you file a joint tax return.  That means you can make a contribution to a Roth IRA even if you have a nonworking spouse.

Roth IRA Compensation Limits

As mentioned earlier, the first contribution limit we're going to talk about has to do with compensation.  To be eligible for a Roth IRA contribution in a given calendar year you need some form of compensation, but there is also an income limit on contributions.  If your adjusted gross income exceeds these limits, then you are no longer eligible to contribute to a Roth IRA.

 In 2007 and 2008, the adjusted gross income limits are:

• Single filers, Head of Household or Married Filing Separately (and you did not live with your spouse during the year) with modified adjusted gross income up to $99,000 can make a full contribution.  Contributions are phased-out starting at $99,000 and you cannot make a contribution if your adjusted gross income is in excess of $114,000.
• Joint filers with modified adjusted gross income up to $156,000 can make a full contribution.  Once again, this contribution is phased-out starting at $156,000 and you cannot make a contribution if your adjusted gross income is in excess of $166,000.
• If your tax filing status is Married Filing Separately (and you live with your spouse) you cannot make a Roth IRA contribution if your AGI is in excess of $10,000.

Roth IRA Contribution Limits 2007 and 2008

The second Roth IRA contribution limit we're going to discuss has to do with how much you can contribute to your Roth account.  The table below outlines the contribution limits established for the past several years as well as the next several years:

Roth Contribution Table

Roth IRA Catch-Up Limits

In addition to the "standard" contribution limits shown above, taxpayers age 50 and over by December 31st are eligible to make a Roth IRA catch-up contribution.  Once again, the table below outlines these catch-up contributions for the last several years as well as those for the next couple of years:

Roth Catch-Up Contributions Table

Roth IRA Contribution Example

Keep in mind that these catch-up contributions are in addition to the "normal" Roth IRA contribution limit.  For example, in 2007 you can make a contribution of $4,000.  But if your age 50 and over by year's end, you can make an additional catch up contribution of $1,000 making your total contribution $5,000.

In 2008 you can make a contribution of $5,000 and with a catch-up contribution of $1,000 the total contribution for those 50 and over tops out at $6,000.

All Roth IRA contributions are made on an after tax-basis and therefore not tax deductible.  However, the benefit of this arrangement is that all withdrawals from a Roth IRA account are tax-free.

Access to Roth Contributions

Normally, you can gain access to your Roth IRA money through what are called qualified distributions or withdrawals.  A qualified distribution is one that happens five years after you first started to contribute to a Roth IRA and you've reached age 59 1/2.

Remember, the purpose of a Roth IRA is to put money aside for your retirement years.  Early withdrawals, or distributions, from a Roth IRA are normally subject to a 10% additional tax penalty.  There are some exceptions to this penalty including disabilities, first time home ownership, and the payment of higher education costs.  For more information on this topic, please see our detailed article on IRA Withdrawals.

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