Roth IRA Contribution Limits - Making The Most Of Them

IRA accounts, especially Roth accounts, can become pretty complicated when you are trying to figure out withdrawal rules and Roth IRA contribution limits. IRA accounts can be very restricting and very tough to maneuver around in because of all the limitations, especially when dealing with your tax deductible income. Roth IRAs allow you to count up to a certain amount (depending on your gross annual income) of your income as tax free. But with everything else dealing with the IRS, there are limits to this. Here’s a quick breakdown on when you can count up to $4000 per year (as set in 2006) as tax free.

  • When you are single/ only household provider and you are making between $95,000 and $110,000
  • When you are married and filing your IRA account together and your combined income is between $150,000 and $160,000
  • When you are married and filing your IRA accounts separately your combined income must be between $95,000 and $110,000
Of course, if your adjusted gross income (AGI) is less then any of the above amounts you can still count some of your income as tax free, but you just won’t be able to capitalize on the maximum returns. If you are above any of the amounts you are out of luck and will have a tough time getting any income counted as tax free. Let’s take a more personal look at some examples… Say you are a single man making $100,000 per year. You can count up to $2,670 as tax free (it is always rounded up to the nearest $10). The same will happen if you are married and are making a combined $155,000- you can count up to $2,000 as tax free. Talk with your accountant if you want to see the relation to your personal finances and your tax free potential. Why does the IRS set limits on contribution levels? As with anything else in the field of taxes and the IRS there are certain levels that everyone fits into. Contribution limits are on a similar plane as tax brackets, depending on what bracket you fall into will determine how much money you get back. Since there are the stated contribution limits and you cannot contribute more than the total allowed during a year, as set by the IRS, it is always advised that you contribute the maximum. Since the maximum contribution is $5,000 you should try and contribute this amount each year. There is no catching up later on. It works a lot like cell phone minutes, use them or lose them! If you only contribute $4,000 this year you cannot put $6,000 next year to make up for it, you can only put the maximum of $5,000.