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Changes in Limitations to Contribute to a Roth IRA

Changes in Limitations to Contribute to a Roth IRA

  • November 5th, 2014
  • jrhassociates
  • Comments Off on Changes in Limitations to Contribute to a Roth IRA

If a married couple files their taxes jointly, and the spouse contributing to an IRA is not covered by a workplace retirement plan, but the other spouse is, the couple’s deduction phase-out is between combined incomes of $183-193K, up from $181-191K. This means that if the couple’s AGI is below $183K, their contributions are fully deductible; if their AGI is between $183-193K, they’re partially deductible; and if their AGI is above $193K, they’re nondeductible.

The Difference When You Contribute to a Roth IRA

The limitations imposed on taxpayers who contribute to Roth IRAs are different than those who contribute to traditional IRAs, because the two types of IRAs have different eligibility criteria. Unlike a traditional IRA, contributions made to a Roth IRA are not tax deductible. Additionally, the income limitations on Roth IRAs determine whether or not someone is eligible to contribute to the account at all, because people above a certain income level are not eligible. Roth IRA eligibility looks at Modified Adjusted Gross Income (MAGI), which is the AGI plus any deductions such as those for student loans or other higher education expenses.

If an individual is single and makes less than $116K, he is eligible to contribute the maximum allowed amount, which is $5,500. If he’s over 50 years old, he can also contribute the additional $1,000 allowed “catch-up” amount. If his MAGI is between $116-131K, he’s eligible to contribute a reduced amount determined by the phase-out scale. If his MAGI is above $131K, he is ineligible to contribute to a Roth IRA. These figures have been increased from $114-129K due to the change in the cost-of-living index.

If a married couple filing their taxes jointly want to contribute to a Roth IRA, they can contribute the full amount if their MAGI is less than $183K. Like the individual, if the couple is over 50, they are eligible for the $1,000 catch-up contribution, too. If their MAGI is between $183-193K, they can contribute a reduced amount determined by the phase-out scale. If their MAGI is above $193K, they cannot contribute to Roth IRA accounts at all. These figures are up from $181-191K due to the increase in the cost-of-living index.

If you have any more questions about how the increased cost-of-living index affects how much you can contribute to various types of retirement plans, call the tax professionals at JRH & Associates at (516) 794-5752!

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