How Much Can I Contribute Annually to a Roth IRA?

By Matthew Frankel Markets Fool.com

The maximum anyone can contribute to a Roth IRA in 2017 is $5,500, unless they are 50 or older, in which case the limit is $6,500. However, the ability to contribute to a Roth IRA is subject to income limits, and your contribution limit may be reduced, or even eliminated, if you earn too much money.

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The 2017 IRA contribution limits

The first piece of the puzzle is the overall IRA contribution limit. For the 2017 tax year, IRA contributions are limited to a total of $5,500 per person, with an additional $1,000 catch-up contribution allowed for people age 50 or older. If you have more than one IRA (say, a traditional and a Roth), your total contributions cannot exceed these limits.

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Contributions for the 2017 tax year can be made at any time during the 2017 calendar year, as well as in 2018 before the April 15, 2018 tax deadline. In other words, you have a time frame of more than 15 months during which you can make your IRA contributions.

Roth IRA income limits

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Next, unlike with a traditional IRA, Roth IRA contributions are income-restricted. These accounts were designed to help low- to moderate-income taxpayers save for retirement, so high-income taxpayers cannot contribute to a Roth IRA.

For 2017, to make a full Roth IRA contribution, your modified adjusted gross income (MAGI) must be less than $118,000 or $186,000 if you're single or married filing jointly, respectively. And if you earn more than $133,000 (single) or $196,000 (married filing jointly), you cannot contribute at all. If your income is in the middle of these thresholds, you can make a Roth contribution, but a limited one.

Here's a table with the MAGI income thresholds for various tax filing statuses:

Married filing jointly, Qualified widow(er)

Married filing separately (lived with spouse)

Single, Head of household, Married filing separately (living separately)

Full Contribution MAGI limit

Less than $186,000

$0

Less than $118,000

Partial Contribution MAGI Range

$186,000-$195,999

$0-$9,999

$118,000-$132,999

No Contribution

$196,000 and above

$10,000 and above

$133,000 and above

Data source: IRS.

How to calculate your maximum Roth IRA contribution

If your modified adjusted gross income is below the full contribution threshold for your tax filing status, you can contribute up to $5,500 or your total earned income for the year, whichever is less ($6,500 if 50 or older). And if you're above the "no contribution" amount, you can't contribute to a Roth IRA for 2017.

If you're in the partial contribution range, it's a bit more complicated. Here's a five-step procedure to determine your maximum 2017 Roth IRA contribution:

  1. Find your modified adjusted gross income. Since you don't know your 2017 MAGI yet, it's reasonable to use your 2016 MAGI from your tax return to estimate it, as long as your income hasn't changed significantly.
  2. Subtract $186,000 if you're married filing jointly, $0 if married filing separately, or $118,000 for all other filing statuses.
  3. Divide by $15,000, or $10,000 if filing a joint return, as a qualified widow(er), or if married filing separately and you lived with your spouse at any time during the tax year.
  4. Multiply this amount by your maximum contribution limit. This is either $5,500 or $6,500, depending on whether you're under 50, or 50 or older.
  5. Subtract this amount from the maximum contribution limit to find your reduced limit.

It's important to mention that these contribution and income limits, as well as the calculation method discussed here, only apply to the 2017 tax year. The contribution and income thresholds are likely to increase over time, so it's important to determine your maximum Roth IRA contribution every year.

An example

Let's say that you're 35 years old, single, and have MAGI of $124,000, which is in the "partial contribution" range. Based on the steps above:

  • Your MAGI is $124,000
  • Subtracting $118,000 gives us $6,000
  • Dividing $6,000 by $15,000 gives 0.4
  • Multiplying 0.4 by the maximum contribution of $5,500 gives $2,200
  • Finally, subtracting $2,200 from the maximum contribution limit gives you a maximum Roth contribution of $3,300 for the 2017 tax year.

The "backdoor" method of contributing to a Roth IRA

Finally, it's important to mention that the Roth IRA income limits only restrict your ability to contribute directly to a Roth IRA. If your AGI is in excess of the limits, there's another way to contribute, informally known as the "backdoor" method.

Current IRS law allows anybody to convert a traditional IRA to a Roth IRA, regardless of their income. If you do this with an existing traditional IRA, you can be on the hook for a big tax bill, as you'll need to repay any IRA deductions you got. However, if you contribute to a traditional IRA and immediately convert the account to a Roth, you'll have no such tax implications to worry about.

Here's a thorough discussion of how Roth conversions work, but the point is that if you earn too much to contribute directly to a Roth IRA, that doesn't mean that you can't use one to save for retirement.

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