Roth IRA Contribution Restrictions

Posted on | November 21, 2008 | Leave a Comment

As you prepare for your retirement, understanding your Roth IRA contribution limits is critical to maximizing your tax savings and benefits potential. It’s also important to be able to prepare in advance.

Instead of scrambling around at tax time every year desperately looking for money, you can be prepared and save for your IRA contributions throughout the tax year.

That’s why it’s critical to keep track of Roth IRA contribution limits and other pension saving restrictions on an ongoing basis as part of your overall estate planning. That way you can plan ahead and make sure you have the funds on hand to maximize your savings and tax breaks. But, how do you do that, and what are those limitations? Keep reading to find out.

Limits on 401(k) Contributions

Though not directly related to a Roth IRA, your 401(k) is interconnected. Two years ago, the U.S. government made a temporary law that allowed higher 401(k) contributions a permanent statute. Now, you can contribute up to $15,500 per year, and people over the age of 50 can play catch up by adding an additional $5000 annually.

Limits on Roth IRA Contributions

If you are under the age of 50, your Roth IRA limit is $5000, or $416.67 per month. If you’re over the age of 50, that value increases to $6000. After this year (2008), those limits will increase by $500 increments depending on the level of inflation.

If you participate in a work-based retirement savings plan and want to move your deductions over to a Roth IRA, there are new limitations in place that could affect that decision.

Essentially, if your Modified Adjusted Gross Income is between $95,000 and $110,000 or higher for a single person or $150,000 – $160,000 or higher for a married person, you may no longer be able to deduct contributions to work IRA plans.

SIMPLE IRAs

Employee who are eligible for SIMPLE IRA plans (those funded by salary deferrals and employer contributions) can opt to contribute up to 100% of their compensation, up to a maximum limit of $11,000 each year. Employees and participants who are over the age of 50 can make extra catch-up deferral contributions to an annual limit of $2500.

Roth IRA Catch-Up Plans and Limits

Anyone who is over the age of 50 and currently participating in a Roth IRA, traditional IRA, 403b plan or 401k plan, is allowed to make catch-up payments or contributions up to $5000 per calendar year, with that number increasing each year for inflation.

Before you sit down to work out your retirement savings plan, make sure you understand your Roth IRA contribution restrictions and other caps in place on 401(k) contributions and traditional IRAs.