I want to open a Roth IRA, but how do I know how much maximum I can put into the account for 2008?
- Diana C., Los Angeles, CA
Straightforward Answer: $5,000
Calculating your allowable Roth IRA contribution could have been simple. Then Congress got involved
Maximum Allowable Contribution
If you are under 50 years old, $5,000 is the most you may be allowed to contribute to a Roth. If you are 50 or older, your potential maximum contribution is $6,000. However,
Minimum Income Limitations – You Must Work
Roth IRA contributions are limited to the amount you earn from working. Income from interest and dividends do not count. Therefore, retirees cannot contribute to a Roth IRA. Neither can a newborn. Your Roth IRA contribution cannot exceed your earnings.
Ryan earned $3,500 last year working after school. He also received $12 of interest income. The most Ryan can contribute to a Roth IRA is $3,500.
If Your Spouse Works, That Could Help
If you are married, don’t work (or earn less than the $5,000 or $6,000 maximum), and your spouse does work, your spouse’s income can be used to increase your contribution limit. However, the same income cannot be used for both you and your spouse’s IRA contribution.
Trisha is a stay-at-home mother and doesn’t receive payment for her work. Her husband, Pete, earns $75,000 a year. Both Trisha and Pete can contribute $5,000 a year to their Roth IRAs, even though Trisha has no earned income.
Karen and Pat have mostly retired from the workforce. Karen, who is 63, worked part-time last year and earned $7,500. Pat, age 64, did volunteer work and didn’t earn any money. Together, Karen and Pat can put a total of $7,500 in their Roth IRAs. They can put up to $6,000 in either one. If they do so, the other spouse can contribute up to $1,500. Alternatively, they could split it $3,750 each or any other combination totaling $7,500 so long that neither account received more than its $6,000 maximum.
Maximum Income Limitations
Not everyone is eligible to contribute to a Roth IRA, even if they have earned income. High income earners are excluded from this opportunity to receive tax-free growth. However, if you are single and your income was less than $101,000 for 2008, you can contribute up to $5,000 ($6,000 if 50+) until April 15. If your income was more than $116,000, you cannot contribute to a Roth IRA. If your income is between those amounts, you’re able to contribute some amount less than the maximum. Note that we’re talking income here, not just earnings. So these figures above include items such as interest, dividends, capital gains, etc.
Married individuals with incomes less than $159,000 can contribute the maximum to their Roth IRAs. Those with incomes exceeding $169,000 may not contribute at all. Those with incomes within that range are eligible to contribute a lesser amount.
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Will you contribute the maximum this year? Why or Why not?