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Traditional and Roth IRA Contribution Limits and Income Phase Outs

Published 4/1/08 (Modified 3/9/11)
By MoneyBlueBook

Updated IRA and Roth Contribution Tables For Tax Year 2009

Because of the power of compound interest, it is never too early to start saving for your future and planning your retirement nest egg. The earlier you start taking advantage of tax deferred investments, the more money you'll have to live on when retirement rolls around. Don't count on dying young to relieve you of the need to save either. Statistics show that improvements in medical technology and lifestyle changes, coupled with increased health awareness are extending our lives longer than before.

For the younger, single people out there, I know it can be strange discussing retirement so early on, but you must remember that your actions now have a huge impact on your future welfare. The cash you invest today in a tax deferred retirement account has a disproportionately more significant impact on your wealth level than money invested later. Don't delay or keep putting it off - even catch up contributions won't be much help if you wait too long to save for retirement.

When it comes to saving for retirement, there are a variety of tax deferred options such as the common employer sponsored 401K plan. But there is also the Traditional Investment Retirement Account (IRA) and the Roth IRA. Both are excellent ways to save for the future but you must be mindful of IRS rules when funding them - by being aware of the annual contribution limits, the contribution deadlines, and the applicable income phaseout ranges. I've created a list of helpful tables that cover the most important funding rules below. The income phaseouts listed on the charts are based on modified adjusted gross income (modified AGI or MAGI), which is derived by adding certain income factors back to the adjusted gross income. If you want further extra clarification, check out the official IRS explanation page for more information about AGI and MAGI calculation. For the majority of taxpayers, the modified adjusted gross income number will oftentimes be the same as their regular adjusted gross income.

1) Traditional IRA and Roth IRA Contribution Deadlines

With certain exceptions made for weekends, the April 15 deadline for filing your federal income tax is also the deadline for investors to make their final Traditional IRA and Roth IRA contributions for the closing tax year. For example, April 15, 2009 is the contribution deadline to make a IRA or Roth contribution towards the 2008 limit. After that date, all contribution money will go towards the 2009 tax year limit. This differs from a 401K, which has a contribution deadline that ends on December 31 of the tax year. Thus you should never miss the final deadline to contribute for the prior year. Contribution limits for the IRA and the Roth are considered by the IRS to be "used it or lose it" benefits. Those who fail to contribute the maximum allowed contribution to their IRA or Roth by the deadline, forfeit the limit for that year.

Note that even if you've already filed your tax return before April 15, you can still contribute to your IRA or Roth by the filing deadline, so long as you file an amended 1040X return thereafter to declare it.

2) Traditional IRA and Roth IRA Annual Contribution Limits

Annual Contribution Limits For Both Traditional and Roth IRA
YearNormal ContributionCatch Up For Those Age 50+

Qualification to contribute to an IRA or Roth account requires the contributing taxpayer to have earned income or taxable compensation, comprised of wages, salaries, fees, tips, commissions, bonuses, and taxable alimony. While the traditional IRA is available to all with no income restrictions or contribution phaseouts (not to be confused with IRA deduction limits), only the Roth reduces and limits your contribution if your income goes above certain levels. However for both the IRA and Roth, you are permitted to contribute the lesser of the normal contribution limit noted below or the entire amount of your total taxable income. You are not required to contribute the full amount but you cannot exceed the contribution limit. Those who are 50 years old or older are entitled to higher contribution limits called "catch ups" to help them expedite the pace of their investment.

Another thing to keep in mind is that for married couples, both the husband and wife may make separate contributions to their own individual retirement accounts, even if one of them is not working. This has the potential to effectively double the combined total they may contribute as a married couple.

3) Roth IRA Contribution Phase Out Due To Higher Income

Roth IRA Income Phaseout Ranges For Contributions
YearTax Filing StatusIncome Phaseout Range
2009Single or Head Of Household$105,000 to $120,000
2009Married Filing Jointly$166,000 to $176,000
2009Married Filing Separately$0 to $10,000
2008Single or Head Of Household$101,000 to $116,000
2008Married Filing Jointly$159,000 to $169,000
2008Married Filing Separately$0 to $10,000

Unlike the IRA which has no contribution phaseouts due to income, the amount of money that may be contributed to a Roth IRA per year is dependent on tax filing status, modified adjusted gross income, as well as age. Once the contributor reaches a certain modified AGI level, his or her maximum Roth contribution limit may be phased out or gradually eliminated in linear fashion. The phaseouts in the chart above show income ranges that span between a floor and a ceiling. Those with income below the lower floor amount may contribute the maximum amount. Those that exceed the higher ceiling are completely phased out and will not be permitted to contribute to a Roth IRA for that year. Of course, they can always still contribute to a traditional IRA.

Because the phaseout range is liner, if your income fell precisely in the middle of the income range, you would only be able to contribute 50% of the maximum Roth contribution limit shown above. Keep in mind that IRA and Roth's share the same combined contribution limit. You may open multiple accounts, but the total contribution amount cannot exceed the limit.

4) Income Phase Out For The Traditional IRA Contribution Deduction

Traditional IRA's, unlike the Roth, offer a unique tax benefit - contributors may be qualified to take a tax deduction on the amount they contribute. However, whether the entire amount can be deducted or only partially deducted from income depends on factors including tax filing status and income range.

An important factor that affects the phase out range is whether the contributor is already an active participant in an employer sponsored retirement plan, such as a 401K from work. For those who already participate in such a plan, their IRA contribution deductions are phased out quicker and at lower income levels than those who don't participate in such a plan.

For married couples, if neither you nor your spouse participate in such a plan, the entire amount you are qualified to contribute towards your IRA may be deducted from income. If either of you participates in such a plan however, then deductibility depends on your tax filing status. There are two tables below - one for those covered under an employer plan, and the second one for those who are not. For those who are not personally covered by an employer plan, different rules apply if their spouses are covered (Spouse Covered) and for those whose spouses are not (Spouse Not).

For Those Who Are Covered By An Employer Sponsored Retirement Plan:

Traditional IRA Deductibility Phase Out Based On Income (Covered)
YearTax Filing Status Phased Out Income Range
2009Single or Head of Household$55,000 to $65,000
2009Married Filing Jointly$89,000 to $109,000
2009Married Filing Separately$0 to $10,000
2008Single or Head of Household$53,000 to $63,000
2008Married Filing Jointly$85,000 to $105,000
2008Married Filing Separately$0 to $10,000

For Those Who Are NOT Covered by An Employer Sponsored Retirement Plan:

Traditional IRA Deductibility Phase Out Based On Income (Not Covered)
YearTax Filing StatusPhased Out Income Range
2009Single or Head of HouseholdNo Income Limit
2009Married Filing Jointly (Spouse Covered)No Income Limit
2009Married Filing Jointly (Spouse Not)$166,000 to $176,000
2009Married Filing Separately$0 to $10,000
2008Single or Head of HouseholdNo Income Limit
2008Married Filing Jointly (Spouse Covered)No Income Limit
2008Married Filing Jointly (Spouse Not)$159,000 to $169,000
2008Married Filing Separately$0 to $10,000

So what are you waiting for? Go open a Roth IRA right now! If you don't qualify due to income phaseout, then at the very least you should go open a Traditional IRA.

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