Roth IRA Contribution Limits

It is important to understand the Roth IRA contribution limits, because even though you may well be eligible to open such an account based on your income, there are other factors which can affect how you are able to get the account going.

Although a Roth IRA account is fairly flexible and open for the majority of people, offering greater opportunities for people than standard IRA accounts, there are still limits that you need to be aware of. We have already looked at the issue of income for example. A Roth IRA account is only open for those people who have incomes which would not be described as high or excessive.

Roughly in the region of $150,000 or less, these accounts are suitable for the majority of those people whose gross incomes would be described as average. It is also important to point out the fact that, as opposed to many of the standard IRA accounts, there is no basic limit on the age at which you can open such an account. Whether you are young, over 50 or even over 70, you are eligible and entitled to open one of these tax free accounts.

However, once you have opened your account, what limits are there which you need to be aware of in terms of how much can be contributed within each tax year? The answer is that there is no one fixed sum which is stated as being the contribution limit for everyone who has an IRA account. The Roth IRA contribution limits are based on two main factors. These two limitation factors which you need to be aware of are your age, and whether you fall within the threshold category.

To take the first limit of age to begin with, it's worth noting that if you reach the age of 50 or above by the end of the calendar year, (note - not the tax year in this case), then you become eligible to make extra contributions. These additional contributions are known as catch-up payments. The way this works is that whilst you may well have been making the basic payments towards your IRA previously, once you reach the age of 50 you can then make an additional payment on top of the basic one.

Prior to 2008 this meant that you might be making the full contribution of $4,000 per year towards your Roth IRA account, but if you reached the age of 50 within that calendar year you would then also be able to make an additional $1,000 payment, meaning that your total contribution for the year could be as much as $5,000, entirely tax free.

The good news is that these limits rose in 2008, and for the current year, 2009, they remain at this higher level. Therefore, at the moment you could make a full contribution, up to the standard limit of $5,000, plus an extra $1,000 if you happen to reach the age of 50, meaning that currently your maximum contribution could be as much as $6,000.

As far as Roth IRA contribution limits are concerned, the good news continues because it has recently been announced that for next year, 2010, and beyond, the contribution limit will continue to rise in line with inflation, at steps of $1,000, meaning that the next rise will be to a basic contribution limit of $6,000. The catch-up payment will also rise in line with inflation, rising in increments of $500, so it is possible that we could see total contributions from those 50 or older of $6,500 per year.

However, there is the second point to consider. The figures we have indicated here for both the basic contribution payments and the catch-up contributions are based on the assumption that you fall within the maximum income allowed for the year. Remember, you will only be eligible to open a Roth IRA account if your gross income falls below the maximum specified for the year. However, the phase-out option does provide some flexibility here.

If your income is above the basic rate at which you can benefit from a Roth IRA account, but only exceeds this amount by a few thousand dollars then it is quite possible that you will still fall within the threshold permitted for partial or reduced contributions.

This means that you will still be able to open a Roth IRA account, but your maximum contributions will be reduced, as will the catch-up payments to which you will be entitled. You'll still be able to benefit from making these catch-up payments, but the limit will be lower compared to the full allowance permitted for those on lower incomes.

It's important to be aware of exactly what limits are imposed in terms of income, because there are several factors to bear in mind besides the basic gross amount you earn. The Roth IRA contributions limits will vary depending on how your Roth IRA Income Limits are calculated and other related factors as well.

As far as Roth IRA Limits are concerned, it isn't just the income which is taken into account. Regardless of how much you earn and whether you fall within the category that permits you to make full contributions or partial contributions (phase out), you also have to be aware that there are limits imposed on the contributions you can make within each tax year.

There are a number of factors which can affect the exact amount which you are eligible to contribute towards your account, and as far as Roth IRA limits are concerned, if you've qualified on the basis if income, the you need only understand the limits which will affect you as far as your annual contributions are concerned.