Roth IRAs - Contributions to a Roth IRA

Contributions to a Roth IRA

Roth IRA Eligibility

Unlike Traditional IRAs, there are no age limitations on opening a Roth IRA account. The limiting factor for contributions is your taxable income. Any single person can open a Roth account and fund it up to either the set Annual Contribution Limit or the maximum income for that individual that year (if you make $3,000 in a year, only $3,000 can be contributed even though the annual limit may be $4,000). If you are a parent trying to teach your child about investing, opening a Roth and matching their earnings for them may be a step in the right direction.

On the other end of the spectrum, there are maximum income amounts that limit who may contribute to a Roth Account. Your Adjusted Gross Income must be less than certain values each year for you to be eligible for contribution.

Contributions can be made in a lump sum or in increments. Contributions follow the tax year instead of the calendar year, so you have until tax day in mid-April to contribute to last year's contribution window.

Contribution Limits for Roth IRAs

Both Roth and Traditional IRA accounts have maximum annual contribution limits. You may only contribute up to your annual income, so if you had no reportable income, you can not contribute.

Annual Contribution Limits
Year	Age 49 & Below	Age 50 or Above
2007	$4,000	$5,000
2008	$5,000	$6,000

After 2008 - The annual contribution limits will adjust based on inflation in $500 increments. Therefore, the next contribution limit will be $5,500 once inflation reaches that point.

AGI - There are Adjusted Gross Income (AGI) limits that define how much you are able to contribute to your Roth per year. If you are a single filer and make less than $95,000 or are a joint filer making less than $150,000, you are eligible for the full contribution amount. If you are above these levels, it is still possible to contribute, but to a lesser degree.

Calculate Contribution Limit Use this form to calculate your Roth IRA contribution limit.

1.	Enter Your modified AGI
2.	Enter: $150,000 if filing a joint return or qualifying widow(er) $0 if married failing separate return and you lived with your spouse $95,000 for all others
3.	Subtract Line 2 from Line 1
4.	Enter: $10,000 if filing a joint return or qualifying widow(er) or married filing a separate return and you lived with your spouse at any time during the year $15,000 for all others
5.	Divide line 3 by 4. If the result is greater than 1.00, enter 1.00.
6.	Enter the lesser of the Annual Contribution limit or your taxable compensation.
7.	Multiply Line 5 by line 6
8.	Subtract line 7 from line 6. Round to nearest $10. If less than $200, enter $200.
9.	Enter contributions for the year to other IRAs
10.	Subtract Line 9 from Line 6
11.	Enter the lesser of Line 8 or Line 10. This is your reduced IRA contribution limit.

Over Contributing to a Roth IRA

I know you're excited about saving for retirement, but you accidentally contributed more than you are permitted. Now what? There is a 6% tax applied to the contributed funds over your allowable limit. Since Roth accounts allow contributions to be withdrawn at any time, you can withdraw the overage before tax day and avoid any taxes. The IRS will treat the over-contribution as having not occurred if it is withdrawn from the account before the end of the tax year. Any earnings on the excess contributions is considered taxable income.

Next: Compare Traditional to Roth IRA's >>

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