Income Limits

What are the Roth IRA income limits and how does this affect eligibility and contribution allowances? Roth IRA accounts have specific requirements in place and one of these is the income limits that are put in place by the IRS. The income limits determine who is eligible to open a Roth IRA and how much can be put into the account for any given year.

The income used to determine Roth IRA eligibility is the adjusted gross income. This amount is shown on tax returns for the year, and the income limits can change from one year to the next to take inflation into consideration. The income limit for married couple is higher than the limit for individuals.

In 2010 the Roth IRA income limits for the full amount of allowable contributions was as follows:

  • Married filing jointly- Up to $173,000
  • Qualifying widower- Up to $173,000
  • Married filing separately when spouses reside together for part of the year- $0
  • Married filing separately when spouses do not reside together for any part of the year- Up to $110,000
  • Single- Up to $110,000
  • Head of household- Up to $110,000

In 2010 the Roth IRA income limits for partial allowable contributions was as follows:

  • Married filing jointly- Up to $183,000
  • Qualifying widower- Up to $183,000
  • Married filing separately when spouses reside together for part of the year- Up to $10,000
  • Married filing separately when spouses do not reside together for any part of the year- Up to $125,000
  • Single- Up to $125,000
  • Head of household- Up to $125,000

The Roth IRA income limits allow for partial contributions if the annual income amount exceeds the full contribution limit. If the partial contribution income limits are exceeded then no contribution can be made during that year.

Married couples who live separately for the entire year are treated as single for the purpose of Roth IRA income limits. Qualifying widowers are treated the same as a married couple for the year that the spouse passes way.

Another aspect of the Roth IRA income limits concerns the income that is received. An account holder can not contribute more to a Roth IRA than their taxable earnings for the year. Even though the maximum income limit for this type of account may be much higher only taxed earnings can be used for Roth IRA contributions.

Some individuals may find it difficult to calculate the annual income that is used to determine contribution eligibility before the year ends. Although excess contributions can be penalized with a large financial penalty there are ways to avoid this.

If any excess contributions are declared annually and steps are taken to rectify this then the penalties will not be applied. If excess contributions are made and this is not corrected then the IRS will impose tax penalties on the account.

Before opening a Roth IRA it is important to understand the Roth IRA income limits, and the rules regarding allowable contributions. This type of account can work well for many individuals but a Roth IRA is not the right choice for everyone.