How Much Can I Contribute To A Roth IRA?

IRA's (what is an IRA?) were created in 1974 and were originally intended for workers who were not covered by an employment-based retirement plan. In the 1980's, IRA's were made available to all workers and the Roth IRA was created during the 1990's. The Roth IRA offers significant tax advantages.

Contributions to a traditional IRA are tax deductible. However, distributions from a traditional IRA are taxable within the year they are paid out. Contributions to the Roth Ira are not tax-deductible but qualified distributions received during retirement are tax-free. Also, unlike the traditional Roth IRA, one is not required to withdraw funds at any particular age.

How much one can contribute to their IRA varies based on salary, age and tax-filing status. For those whose adjusted gross income, as defined by the IRS, is below $105,000 and who are under the age of 50, the annual combined limit for contributions to a traditional IRA and a Roth IRA is $5,000. For those over 50, the limit is $6,000 to allow those closer to retirement to "catch-up." For individuals who make over $105,000 but less than $120,000, the amount you may contribute to a Roth IRA is reduced.

The amount you may contribute is determined by a worksheet available in IRS Publication 590. Individuals with adjusted gross incomes greater than $120,000 are not allowed to make contributions to a Roth IRA. For those who are married, the limits get a little more complicated. If you are married and filing jointly, your combined income must be less than $176,000 in order to be allowed to make contributions to a Roth IRA.

Contributions to a Roth IRA for a specific year can be made up until the due date of your tax return for that year. That means that for most people an IRA contribution made as late as April 15, 2010 can count as a contribution made during the 2009 tax year. Also, a 6 percent excise tax applies to all contributions made beyond allowable contribution limits.

2010 is also a special year if you are wanting to convert your IRA to a Roth. With all the benefits of converting this year, it is definitely worth checking out.

To review:

• Contributions made to a Roth IRA are made after taxes.
• Qualified withdrawals are tax-free. 
• The maximum amount of contributions is limited by income
• Individual contribution limits are up to $5,000 for individuals under 50 years of age.
• The maximum contribution limit for those over the age of 50 is $6000. 

For additional information on Roth IRAs and other types of IRA's, see the IRS Publication 590 at http://www.irs.gov/publications/p590/index.html.