Valuable Tidbits About Roth IRA Contribution Eligibility
By CHM on Jul 16, 2007 in Roth IRA Contribution Limits, Roth IRA Rules
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I want to go into a bit more detail on the income restrictions associated with Roth IRA contributions.
In the previous post I gave a very generalized view, here’s a bit more…
The amount a single taxpayer can contribute is phased out if your AGI is between $99,000- $114,000 for 2007. Which means if you earn less than $99,000 in 2007 you are welcome to make a full Roth contribution. If your AGI exceeds $114,000 for 2007 then you can not make any Roth contributions.
The amount married persons filing jointly can contribute is phased out if your AGI is between $156,000- $166,000 for 2007. Which means if you earn less than $156,000 in 2007 you are welcome to make a full Roth contribution. If your AGI exceeds $166,000 for 2007 then you can not make any Roth contributions.
If you file your taxes as married filing separately then you can not make any Roth contribution if your AGI exceeds $10,000 for 2007. Yes you read that right.
In between
What happens if you happen to be one of the lucky ones that fall between the thresholds?
Your contribution is reduced. Figuring this out is a bit tedious, it almost makes you not want to fall in between the two thresholds:) Let’s use the following example to determine what a reduced Roth IRA contribution would look like…
Matthew Carrieri is a 33 years old, single taxpayer who has AGI of $107,000 for 2007. Matthew wants to contribute as much as he can into his Roth and has made no other IRA contributions. Here’s how you figure out his allowable contribution:
Line 1: Enter your AGI - ($107,000)
Line 2: For single taxpayers enter the number - ($95,000)
Line 3: Subtract line 2 from line 1 - ($12,000)
Line 4: For single taxpayers enter the number - ($15,000)
Line 5: Divide line 3 by line 4 - (.80)
Line 6: Multiply line 5 by 4000 - ($3200)
Line 7: Subtract line 6 from 4000 - ($800)
Line 8: Enter the lesser of line 7 or 4000 - ($800)
Matthew’s reduced Roth IRA contribution for 2007 is $800.
Now I could go through this process for married people filing jointly but I think you get the point. If you’d like to find out more about this calculation, go to Publication 590 of the IRS website.
I hope you’re still awake…
Tags: Adjusted gross income, AGI, Roth IRA Contribution Limits, Roth IRA Rules
Craig | Feb 4, 2008 | Reply
I have a SEPP and am not sure if I can contribute to a Roth. I’m self employed and have S Corp. and pay myself $2000 per month and ‘pass through’ the rest.
thanks
Craig
CHM | Feb 5, 2008 | Reply
Craig thanks for stopping by… you absolutely can have a Roth IRA and based on your monthly income you’d be eligible to make a full contribution.
Contributions to a SEP actually reduce your taxable income and can be helpful if you ever started pushing up against the Roth eligibility limits.
rosemary miko | Feb 5, 2008 | Reply
My husband and I have a small business, c-corp, our combined income is less than the $166,000 max. Can we still contribute to a roth ira? We have each contributed $13,000 to our company’s Simple ira. Do the earnings of the corp matter?
CHM | Feb 5, 2008 | Reply
Hllo Rosemary,
The Roth IRA eligibility rules are based on the Adjusted Gross Income you report on your PERSONAL tax returns.
Contributing to the Simple in no way hampers your ability to make your Roth contributions.
Thanks for commenting