Roth IRA Limits

In this article, we're going to discuss Roth IRA limits. This includes the two broad categories of compensation or income limits, which affect eligibility, as well as those limits that apply to contributions to a Roth IRA account. We're also going to provide up-to-date information on the contribution limits for 2011 and 2012, including catch-up contributions.

Roth IRA Plans

Roth IRA plans are a powerful way to save for your retirement years.  They offer you the benefit of saving after-tax money, and provide you with a source of tax-free income in retirement.  Other benefits of Roth IRAs include:

• Contributions can be made at any age, as long as you have some form of compensation.
• Tax-free withdrawals or distributions from your Roth IRA after age 59 1/2.
• No forced minimum required distributions at age 70 1/2.

We have a lot more detail on Roth IRAs in the articles we've previously published.  If you want more detailed information than we are presenting here, you might want to take a look at Roth IRA Contribution Limits or Roth IRA Rules.

Roth IRA Income or Compensation Limits

There aren't many factors that can stop you from investing in a Roth IRA, but one of them is too much income.  Stated another way, if you make too much money, then you may not be eligible to contribute to a Roth IRA.  In fact, there is even an income threshold where you're only eligible for a reduced contribution.  Those are known as the phase-out limits.

We're not talking about your gross income; we're talking about your modified adjusted gross income or AGI.  This calculation is normally performed when you complete your federal income taxes on Form 1040, which is sent to the IRS.  In case you don't know your exact AGI, you can pull out last year's form and look for the reference to AGI, which is normally line 36.

These income or compensation eligibility limits, as stated by your AGI, for Roth IRAs for the years 2011 and 2012 appear in the table below:

Roth IRA Income Limits 2011

Roth IRA Income Limits 2012

Roth IRA Contribution Limits

The second limit that applies to Roth IRAs has to do with the contribution you're eligible to make in a single tax year.  The exact number really depends on two factors.  If you're age 50 or older by the end of the calendar year, then you're also eligible to make an additional catch-up contribution.

The second factor that can affect your level of funding has to do with whether or not a reduced contribution applies because of the income limitation previously mentioned.  The current contribution limits for Roth IRAs appear in the table below:

Roth IRA Contribution Limits

Roth Contribution Example

Here's an example demonstrating how this table works.  In the tax year 2011, individuals eligible for a full contribution to a Roth IRA can contribute up to $5,000.  But if that individual is age 50 or older by the end of the calendar year, then they can contribute $5,000 plus $1,000 or $6,000 in 2011.  The same holds true for 2012.

Finally, if you're really into financial planning, then you might be interested to learn that in the years beyond 2013, the Roth contribution limit can increase at the rate of inflation in $1,000 increments, while the catch up limit can move up in $500 increments.

Calculating Roth IRA Contributions

While it's certainly important to understand exactly how much you can add to your Roth IRA each year, it's equally important to understand if your retirement funding strategy is working.  To answer that question, we have some retirement tools that can help.

• Retirement Calculators:  at last count we have over 15 retirement calculators to choose from, including one dedicated to Roth IRA funding and another that can help you choose between a Roth and Traditional IRA.
• Retirement Guide:  we also have a retirement guide that can help you figure out your best retirement investment options, including Roth IRAs and 401k plans.  We even have a series of articles that can help you figure out how to put a retirement plan together.  We start with Retirement Planning in Your 20s, and finish up with Retirement Planning in Your 60s.

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