Roth IRA Income Limits

Roth IRA income limits are important to understand, because not only do they have a significant impact on whether or not you are eligible to open such account, they also have an effect on how much you are entitled to contribute towards it each year. Between the income limit and age benefits the amount you can pay in to your IRA account varies quite significantly, and there is a good deal of confusion about how much a person is entitled to pay in.

There are also several other factors that people may be either confused about, or unaware of. We'll have a look in this article about some of these limitations on income, and also ways in which you may still be entitled to open an IRA account despite having too high an income, or being unaware of how much your income is likely to be for this year and the foreseeable future.

The first thing to be aware of is how income is calculated, because it is not, as is commonly thought, the gross amount which you earn that's taken into account. It is actually the adjusted gross income, or AGI, which is calculated during the completion of your 1040 form in preparation for filing your federal income tax return. This adjusted amount, which should be found on your copy of the form, is the figure to take into account when deciding whether or not you are eligible to open a Roth IRA account.

As a guide, for this year, 2009, you are allowed to open such an account if your AGI is anything up to $105,000. If you are married and thinking of opening a joint account then your combined income should be no more than $159,000.

However, although Roth IRA income limits seem fairly fixed, there is a degree of leeway and some flexibility. If your income is higher than the figures mentioned above it may be that you will still qualify for a Roth IRA account, but the amount that can be paid in will be reduced.

This phased out income limit is currently for those whose incomes range from $105,001 to $120,000. This is actually a $4,000 increase on last year, and the threshold limits for both full and reduced contribution allowances will continue to rise in line with inflation. These increases will be in $1,000 increments, and so it is possible that these limits will rise again next year, in 2010.

It's worth noting that for those people who are married but have lived apart for a full year, the limits will be the same as though you were filing for an individual account. Additionally, the amount of money that can be contributed towards an IRA within any one year must not exceed the total amount of income that you declare. All money paid to an IRA must be from income, and you are not permitted to make contributions from any other sources such as interest, investments or property.

For most people the total amount of income that you receive is likely to increase over time. If you open a Roth IRA account when you are still quite young, then it is quite probable that over many years your income rises to perhaps meet, and even exceed, the limit imposed for being able to open and maintain such an account. So what do you do in this case?

Assuming that your starting income is low enough to qualify you to open a Roth IRA in the first place, as your income meets the limit you will enter the phased threshold band. This will mean that the total contributions which you can make each year will reduce. Eventually, if your income reaches the maximum allowed for this allowance, you will not be able to continue to contribute towards it. However, the account will still remain open and active. Should your circumstances change and your income reduced, you'll be able to continue contributing, otherwise it will remain earning money ready for your retirement.

However, what happens if you don't know exactly how much you will earn within a year? Clearly, this is the case for many people, and if you anticipate your earnings to be within the region that could place you at the maximum allowed for a Roth IRA account, then you may wonder whether it's worth opening one, or continuing to contribute to it.

The fact is that Roth IRA income limits can be re-evaluated during the year, and even right towards the end of the tax year. If you reach the end of the tax year and discover that you have either reached the limit, or entered the threshold region for reduced contributions, you will need to declare this. As long as you take action to correct any overpayments which you have paid, then there is no difficulty at all. If you don't take action, then you may well find penalties imposed.

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 income is 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.