Roth IRA Deduction Limits

An individual retirement account offers savers a tax-advantage tool to invest money for retirement. Understanding the rules that govern contributions to an IRA is vital to properly utilize this beneficial type of account. There are limits to how much one can contribute to an IRA and a maximum income defining who can contribute.

Types of IRAs

• There are two types of IRAs. The traditional IRA is a tax shelter that allows income to be deposited to the account tax-free. It is taxed when the income is withdrawn. A Roth IRA allows taxed income to be deposited into the account and then withdrawn tax-free.

Phased-Out Contributions and MAGI

• Two factors that help determine Roth IRA eligibility are modified adjusted gross income, or MAGI, and the phased-out IRA contribution. A phased-out contribution means it is prorated between the income limits. Closer to the lower limit, a Roth IRA saver can contribute a larger proportion. Closer to the upper limit, an individual can contribute less. MAGI is calculated as total gross income less total IRS qualified deductions.

Roth IRA Contribution Limits

• For 2009 and 2010, the contribution limit is $5,000 for those under age 50, and $6,000 for individuals age 50 and older. For 2011, the maximum contribution will be adjusted based on the rate of inflation during the previous year.

Married Couple Income Limits

• The maximum income limit for a Roth IRA contribution depends on filing status. For a married couple filing jointly, the maximum income to make a full Roth IRA contribution is less than $167,000. Both partners can make a full contribution: $10,000 if both are under age 50, $11,000 if one is 50 or older and the other is under 50, and $12,000 if both are 50 or older. If the couple makes at least $167,000 and less than $177,000 the contribution limit is phased out as their income approaches the upper limit. If their income is above $177,000, they cannot contribute to a Roth IRA.

Single Taxpayers

• For a single or head-of-household filer, the full Roth contribution income limit is less than $105,000. Between $105,000 and less than $120,000, the contribution is phased out; and above $120,000, the taxpayer cannot contribute to a Roth IRA. For all filers who wish to contribute to a Roth IRA in 2011 and beyond, the income limits will be indexed to an inflation rate in much the same way the maximum contribution will be inflation-adjusted.