Roth IRA Rules: Income and Contribution Limits
IRAs were created to encourage people to save for their retirement, by offering them a significant tax break.
They are intended for ordinary working people - not, for example, the wealthy (income limits prevent them from participating),
or trust fund kids too lazy to get a job (contributions have to be made from salary, not from investments or other income).
The rules for eligibility and contribution limits change every year.
You can (and should) get the official rules from IRS Publication 590;
but to help make things clear, here is a quick and user-friendly (but not official!) summary:
To summarize how all of the rules work:
- If your status is Married Filing Separately you are effectively locked out due to an extremely restrictive limit.
(The rationale: the government doesn't want to give you a tax break in case your spouse is high-income.
The exception: if you and your spouse lived apart for the whole year, you get the same limits as a Single filer.)
- If your status is anything else, then your contribution limit is (using 2013 through 2018 numbers):
- $5500 if your income is low enough (and $6500 if you're 50 or older)
- zero (that is, you can't contribute at all) if your income is too high
- a sliding scale somewhere in between, if your income is somewhere in between "low enough" and "too high"
("Income" here is Modified Adjusted Gross Income.)
- In case you have multiple IRAs, the limit is the total you are allowed to contribute to all of them
- And in all cases, your total contributions can't be greater than your reported salary income.
(Note that two different income numbers are being used here - your MAGI and your salary - and that causes confusion.
Your MAGI determines whether you are allowed to contribute; and if you are allowed, then your contribution can't be greater than your salary.)
Phase Out: Reduced Contributions
If your income falls between the limits shown in the top calculator, your maximum contribution is reduced proportionally:
(Fill out the top calculator before using this one!)
If you don't qualify...
If your income is too high to make a Roth IRA contribution, you may still be eligible for a traditional deductible IRA
if neither you nor your spouse is covered by a retirement plan at work.
See IRS Publication 590.
(Look under "Traditional IRAs".)
A Roth IRA is intended to be a retirement account, so penalties apply if you misuse it by withdrawing funds too early.
As a rule, you should plan not to make any withdrawals until at least age 59½ or five years after you make your first contribution, whichever comes later.
This rule does have exceptions: see
IRS Publication 590
for details. (Search for "Qualified Distributions".)