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Traditional and Roth IRA Contribution Limits and Income Phase Outs

Published 3/31/08 (Modified 3/8/11)
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
Year Normal Contribution Catch Up For Those Age 50+
2009 $5,000 $6,000
2008 $5,000 $6,000
2007 $4,000 $5,000

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
Year Tax Filing Status Income Phaseout Range
2009 Single or Head Of Household $105,000 to $120,000
2009 Married Filing Jointly $166,000 to $176,000
2009 Married Filing Separately $0 to $10,000
2008 Single or Head Of Household $101,000 to $116,000
2008 Married Filing Jointly $159,000 to $169,000
2008 Married 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)
Year Tax Filing Status Phased Out Income Range
2009 Single or Head of Household $55,000 to $65,000
2009 Married Filing Jointly $89,000 to $109,000
2009 Married Filing Separately $0 to $10,000
2008 Single or Head of Household $53,000 to $63,000
2008 Married Filing Jointly $85,000 to $105,000
2008 Married 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)
Year Tax Filing Status Phased Out Income Range
2009 Single or Head of Household No Income Limit
2009 Married Filing Jointly (Spouse Covered) No Income Limit
2009 Married Filing Jointly (Spouse Not) $166,000 to $176,000
2009 Married Filing Separately $0 to $10,000
2008 Single or Head of Household No Income Limit
2008 Married Filing Jointly (Spouse Covered) No Income Limit
2008 Married Filing Jointly (Spouse Not) $159,000 to $169,000
2008 Married 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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20 Responses to “Traditional and Roth IRA Contribution Limits and Income Phase Outs” 

  1. Laura says:

    I'm going to save this post! It's a great reference guide. Since my husband and I move to another state we won't have 401(k)s to put our money in. We're going to ty and maximize our contributions for our IRAs. I appreciate the work you put in.

  2. Raymond says:

    Thanks Panda,

    Much of this information can be obtained through the IRS' website, but they don't always compile them into easy to locate tables.

    As for my own IRA, although most of my money's been locked up in other investments, I managed to scrounge up $4000 to contribute towards my 2007 Roth before the deadline. Use it or lose it!

  3. Jim Evlewt says:

    Thanks for the great article. I have a simple question I've been wondering about, though:

    Say a person had earned income in previous years, and contributed to a Roth IRA... but this year had no earned income, for whatever reason. What's to prevent the person from going ahead and contributing to a Roth this year anyway? It's not declared on the 1040 (which would show the earned income problem); who would step in and say "no"? Someone at the time when the Roth is tapped decades later???

    I'm sure there's a good argument against the above, but I'm wondering what it is!

  4. Raymond says:

    Jim,

    I haven't looked into this in great detail, but I presume brokers and banks that operate Roth accounts do report contributions to the IRS.

    Keep in mind that there is a 6% IRS penalty that is imposed on all excess unqualified Roth contributions until the excess is withdrawn and removed. If you had no earned income for the year, you would not be entitled to contribute and the entire amount would be regarded as excess. Thus, I would presume the IRS would keep adding up the 6% penalty charges each year until a time that the sum is large enough for them to come after you to enforce penalty payment.

  5. William says:

    "For example, April 15, 2007 is the contribution deadline to make a IRA or Roth contribution towards the 2007 limit. After that date, all contribution money will go towards the 2008 tax year limit." Do you mean April 15, 2008?

  6. Raymond says:

    Oh my, yes you are correct William. Thanks for pointing out the typo!

  7. Aaron says:

    Very informative site thanks. I have a question, if you are one of those people who have filed and extension for 2007 taxes can you still make a contribution for 2007 eventhough it is past April 15th 2008?

  8. Raymond says:

    Aaron,

    Once it's past April 15, you can't submit an IRA or Roth contribution for the previous tax year. The extension only applies to IRS late filing penalties.

  9. T Meyer says:

    I am 58, single and have retirement income that exceeds the Traditional IRA Deductibility threshhold but is below the threshhold at which the Roth IRA contribution phaseout commences. I'm contemplating taking a parttime job and saving that income for future retirement needs. Please let me know if I am interpreting the IRA income regulatons correctly:
    1. As long as my modified adjusted gross income is below $99,000, I can contribute my gross (not net) earnings (up to $6,000) from the parttime job to a Roth IRA. Once my modified adjusted gross income exceeds $114,000, I cannot contribute to a Roth IRA.
    2. Regardless of my modified adjusted gross income, I could contribute up to $6000 in gross (not net) earnings from the parttime job to a Traditional IRA. I understand that this Traditional IRA contribution would not be deductible. I'm wondering what the advantage of putting that money into an Traditional IRA rather than another investment option would be. It seems to me that putting the money into an IRA would have a disadvantage - no access to the fund without penalty until I'm 59.5.

  10. kim s. says:

    Where did you get the Trad. IRA info? Some of it appears to be wrong regarding IRA income restrictions....

    In Item #2 above, you state "While the traditional IRA is available to all with no income restrictions or contribution phaseouts, only the Roth reduces and limits your contribution if your income goes above certain levels."

    This is not true.

    It is clear from the IRS website at (link) that there is certainly is an upper income limit for Trad. IRAs...

    From the IRS:
    Modified AGI limit for traditional IRA contributions increased. For 2008, if you are covered by a retirement plan at work, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified adjusted gross income (AGI) is:

    * More than $85,000 but less than $105,000 for a married couple filing a joint return or a qualifying widow(er),
    * More than $53,000 but less than $63,000 for a single individual or head of household, or
    * Less than $10,000 for a married individual filing a separate return.
    For 2008, if you either live with your spouse or file a joint return, and your spouse is covered by a retirement plan at work, but you are not, your deduction is phased out if your AGI is more than $159,000 but less than $169,000. If your AGI is $169,000 or more, you cannot take a deduction for contributions to a traditional IRA.

    What gives?

  11. Raymond says:

    Kim,

    I think you are getting two similar traditional IRA components mixed up. You are confusing "income limits pertaining to the right to contribute to an IRA account at all" to "income limits pertaining to the right to take an IRA deduction".

    There is no income restriction or cap limit to the ability to contribute to an IRA retirement account. However, there is indeed income limitations to one's ability to take an IRA tax deduction. Higher incomes precludes one from enjoying an IRA deduction on one's income tax return.

    I made a slight change to the article wording to make it a bit more clear...thanks for your commentary!

  12. john says:

    Hello,

    I am covered by a pension and a 457 (b) plan. My W-2 #14 box is checked under Retirement. I am married and our MAGI is approx $180,000. I already contributed to a ROTH $10,000 total (wife and I) and need to change the contribution. I am under the impression that I cannot benefit from the deduction on my taxes if $10K is moved from ROTH to Traditional. Is that correct? Would it be more beneficial to up my annual contribution by the amount I would have contributed to an IRA so I can benefit from the tax benefit? Thanks for your help.

  13. Kath says:

    I withdrew some money from my IRA several years ago due to hardship. At that time I was not working. I was sick and I needed money to pay rent. Bank told me about possible penalty but I never got any papers about this. Would it be possible, that IRS did not penalize me or is there a fine waiting somewhere for me?

  14. M D Franklin says:

    I file as single, head of household. For the first time in years, I have a 401k plan at work, to which I contributed minimally throughout 2008. I will be 52 soon. I have a traditional IRA. My income from all sources will be under $50K for 2008. Please confirm that I can contribute deductible IRA of $6,000 for tax year 2008. Thank you.

  15. Quentara says:

    2009 Married Filing Jointly (Spouse Covered) No Income Limit
    2009 Married Filing Jointly (Spouse Not) $166,000 to $176,000

    that seems backwards to me?

  16. Pete says:

    Everything that the US government came up are so complicated. This is basically an insult to our intelligence and created a huge over head. I think America is digging its grave and bury herself in it very soon. The world will leave America behind.

  17. Charles W. says:

    My confusion is about the traditional IRA contribution. If there is no income limit except that for the purpose of taking the taxable deduction, how is the taxable value determined at the time of the withdrawl? In other words, If I have an income of $90,000, filing as single,I am allowed no deduction for a traditional IRA. If I contribute to one anyway, I have already paid tax on that money. Say it goes up 25% and I want to start taking withdrawels at age 60+. Won't I be charged again for taxes on the original cost? If not, how is that handled?

  18. john agnoletti says:

    what is the thinking behind married filing separately deduction phaseout at $10,000 AGI? Seems so low compared to the other AGI thresholds.

    Just wondering? Any logical reason for this?

  19. Michael D says:

    My wife and I are both 1099 independent contractors. I have an i401k.

    Can both of us contribute the max to an IRA? ie...$10000

  20. Darryl says:

    I contributed 5k to my ROTH IRA early in 2010, assuming I would have "earned income". So far, I only have unemployment income and taxable income from converting a 401k to a ROTH IRA.

    1) Is the 401k to ROTH rollover considered "earned income" so that I am eligible to contribute to the ROTH?
    2) If not, is my 5k subject to the 6% excess contribution tax?
    3) Can I "get my 5k out" of the ROTH (reverse) the contribution and avoid the 6% penalty? If so, how do I calculate the "growth" of the 5k since I contributed?

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