It’s Friday, so it’s time for this week’s reader-submitted Q & A. If you’d like to submit a question, click here for more information or simply email a question.

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

Detailed Explanation:

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.

Example 1

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.

Example 2

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.

Example 3

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.

View the 2009 Roth IRA limits here.

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Will you contribute the maximum this year? Why or Why not?

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16 Comments to “Roth IRA Contribution Limits – Your Earnings, Income and Marital Status Matter”

  1. Phillip says:

    I did for 2008. Didn’t get hurt too bad because I got in in and during the crash in the fall.

    But I plan and hope to do so for 2009.

    Good, informative article. Minimum Income limitations was a good point I’ve always wondered about.

  2. JJ MASON says:

    I work for the federal government and contribute to my TSP account the maximum. I make $110k a year. My spouse if fully retired. Can I contribute the maximum to my Roth IRA. I will retire at age 66 in about 3 years.

  3. Michael says:

    @JJ Mason: No problem. If you wanted, your spouse could contribute as well. You can contribute up to $6K and your spouse (if 50 or older) can do similarly.

  4. Britt says:

    Technically, a newborn can contribute to a Roth IRA if the newborn has earned income. For instance, if the newborn lands a gig as the latest baby model for Gerber or lands a part as an extra in a Hollywood blockbuster, the newborn can contribute to a Roth subject to the same income and contributions limits as any other person.

    Earned income is the key. There is no age limitation on a Roth IRA.

  5. Michael says:

    @Britt: It’s just that you must be 50 or older to get that extra $1K “catch-up” contribution.

  6. Craig says:

    You stated that interest and dividends don’t count when calculating your contribution limits. So I assume they also don’t count towards your annual contributions? For example, if I have an investment in my Roth IRA that earns a $500 in dividends and/or interest, and that dividend is reinvested into the Roth IRA, I would still be able to invest $5000 that year. Is this correct?

  7. Michael says:

    @Craig: Absolutely. You can contribute $5,000 to your account regardless of the investment and income performance of your previous contributions.

  8. Jess says:

    My husband and I are graduate students so the majority of our income is in scholarship or stipend. Can that count towards “earned income”?

  9. Michael says:

    @Jess: I don’t believe so, other than any part of it that is reported as wages on a W-2 form you receive.

  10. Aaron says:

    My wife is working while I return to graduate school. She will make around $50,000 in 2010 and I will make nothing. Can we make contributions to both her and my ROTH IRA accounts based on her income?

  11. Michael says:

    @Aaron: Absolutely.

  12. Kim says:

    If the spouse makes the money, but he makes around 175K which is in the range of the partial roth IRA contribution. What is the partial contribution % or how is it determined?

  13. Michael says:

    @KIm: Check out the table and links here:

  14. Angela says:

    Can my husband invest pre-tax dollars for me if I have an income? He earns around $80,000 per year. I earn around $10,000 per year.

  15. Michael says:

    You can set up a spousal IRA. Whether it is pre or post-tax depends on whether he or you are covered by a retirement plan at work. If either is, then your IRA contribution would be post-tax.

  16. I definitely think get my roth IRA was one of the smartest things. It’s a great savings Idea and can turn out a nice sum.

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