The Ins and Outs of IRAs: Income and Contribution Limits

For a vehicle that was set up to be a simple way for Americans to save for retirement, the IRA sure has a lot of complex nooks and crannies. First, there are three key types--traditional deductible IRA, traditional nondeductible IRA, and Roth IRA. There's also the fact that you can manipulate your IRA in various ways, rolling over, converting, and recharacterizing IRA assets. Finally, there are rules governing when and how you can withdraw your assets.

But the first thing you need to know about IRAs is whether--and how much--you can contribute to one. The rules regarding eligibility and contribution amounts don't change a lot from year to year, but they change enough that you have to keep an eye on them. Here's what you need to know. (Morningstar's IRA Calculator also gives you a quick view of your eligibility.)

Roth IRA
Tax Treatment

• Contributions are taxed; qualified withdrawals tax-free; no required minimum distributions.

Contribution Limit

• Under age 50: $5,000
• Over age 50: $6,000 (the limits are the same for both 2010 and 2011)

Contribution Deadline

• April 18, 2011, for 2010 contributions
• April 17, 2012, for 2011 contributions

Income Limits for 2010
Single filers can make a full Roth IRA contribution if their modified adjusted gross income is less than $105,000. They cannot make a Roth contribution at all if their modified adjusted gross income is more than $120,000. (Contributions are phased out at modified adjusted gross incomes between $105,000 and $120,000. Such individuals might also consider opening a traditional nondeductible IRA and converting to a Roth.)

Married couples filing jointly can make a full Roth IRA contribution if their modified adjusted gross income is less than $167,000. They cannot make a Roth IRA contribution at all if their modified adjusted gross income is more than $177,000. (Roth IRA contributions are phased out at modified adjusted gross incomes between $167,000 and $177,000. Such individuals might also consider opening a traditional nondeductible IRA and converting to a Roth.)

Income Limits for 2011
Single filers can make a full Roth IRA contribution if their modified adjusted gross income is less than $107,000. They cannot make a Roth contribution at all if their modified adjusted gross income is more than $122,000. (The deductibility of contributions is phased out at modified adjusted gross incomes between $107,000 and $122,000. Such individuals might also consider opening a traditional nondeductible IRA and converting to a Roth.)

Married couples filing jointly can make a full Roth IRA contribution if their modified adjusted gross income is less than $169,000. They cannot make a Roth IRA contribution if their modified adjusted gross income is more than $179,000. (Roth IRA contributions are phased out at modified adjusted gross incomes between $169,000 and $179,000. Such individuals might also consider opening a traditional nondeductible IRA and converting to a Roth.)

Traditional Deductible IRA
Tax Treatment

• Contributions are tax-deductible; assets compound tax-deferred; ordinary income tax on withdrawals.

Contribution Limit

• Under age 50: $5,000
• Over age 50: $6,000 (the limits are the same for both 2010 and 2011)

Contribution Deadline

• April 18, 2011, for 2010 contributions
• April 17, 2012, for 2011 contributions

 

Income Limits for 2010
Single filers who are covered by a retirement plan at work can fully deduct their contribution if their modified adjusted gross income is less than $56,000. They cannot deduct their contributions at all if their modified adjusted gross income is more than $66,000. (The deductibility of contributions is phased out at modified adjusted gross incomes between $56,000 and $66,000.)

Married couples filing jointly who are covered by a retirement plan at work can fully deduct their contributions if their modified adjusted gross income is less than $89,000. They cannot deduct their contributions if their modified adjusted gross income is more than $109,000. (The deductibility of contributions is phased out at modified adjusted gross incomes between $89,000 and $109,000.)

Single filers who are not covered by a retirement plan at work can fully deduct their contributions at any income level.

Married couples filing jointly, but neither of whom is covered by a retirement plan at work, can fully deduct their contributions at any income level.

Married couples filing jointly with one spouse who is covered by a retirement plan at work can fully deduct their contributions if their modified adjusted gross income is less than $167,000. They cannot deduct their contributions if their modified adjusted gross income is more than $177,000.

Income Limits for 2011
Single filers who are covered by a retirement plan at work can fully deduct their contribution if their modified adjusted gross income is less than $56,000. They cannot deduct their contributions at all if their modified adjusted gross income is more than $66,000. (The deductibility of contributions is phased out at modified adjusted gross incomes between $56,000 and $66,000.)

Married couples filing jointly who are covered by a retirement plan at work can fully deduct their contributions if their modified adjusted gross income is less than $90,000. They cannot deduct their contributions if their modified adjusted gross income is more than $110,000. (The deductibility of contributions is phased out at modified adjusted gross incomes between $90,000 and $110,000.)

Single filers who are not covered by a retirement plan at work can fully deduct their contributions at any income level.

Married couples filing jointly, but neither of whom is covered by a retirement plan at work, can fully deduct their contributions at any income level.

Married couples filing jointly with one spouse who is covered by a retirement plan at work can fully deduct their contributions if their modified adjusted gross income is less than $169,000. They cannot deduct their contributions if their modified adjusted gross income is more than $179,000.

Traditional Nondeductible IRA
Tax Treatment

• Contributions are not tax-deductible; assets compound tax-deferred; ordinary income tax on withdrawals.

Contribution Limit

• Under age 50: $5,000
• Over age 50: $6,000 (the limits are the same for both 2010 and 2011)

Contribution Deadline

• April 18, 2011, for 2010 contributions
• April 17, 2012, for 2011 contributions

Income Limits for 2010
There are no income limits for nondeductible IRA contributions. Nor are there income limits on IRA conversions, so it's possible to open a traditional IRA, then convert it to a Roth.

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