If you are considering opening an individual retirement account (IRA), you have already taken an important step toward a financially-secured retirement. Of the two most popular IRA accounts, traditional and Roth, the latter is topped up with after-tax dollars.
Setting up a Roth IRA is the sensible move if you expect to pay higher taxes in retirement than you do now. However, the size of your paycheck will determine whether you are allowed to open a Roth IRA as this account comes with an income limit.
How much can I contribute to my Roth IRA?
How to fund a Roth IRA?
Generally speaking, you can only contribute earned income to an IRA and the Roth variant is no exception to this rule. This means that Social Security payments, pension payouts, dividends and other types of income can’t be used to fund your Roth IRA. Additionally, you can’t contribute more than what you earn. If you make $5,000 in taxable income in a year, your contribution limit will be $5,000.
The Internal Revenue Service (IRS) capped Roth IRA contributions at $6,000 per year ($7,000 if you are aged 50 or older) for 2021. Bear in mind that these limits apply to the combined contribution of all your IRA accounts. Roth IRA contributions are reduced — and eventually eliminated — if your modified adjusted gross income (MAGI) exceeds certain limits.
|Filing status||2020 MAGI||2021 MAGI||Maximum annual contribution|
|Single, head of household or married filing separately (if you didn't live with spouse during year)||Less than $124,000||Less than $125,000||$6,000 ($7,000 if 50 or older)|
|Between $124,000 and $139,000||Between $125,000 and $140,000||Reduced contribution|
|$139,000 or more||$140,000 or more||No contribution allowed|
|Married filing jointly or qualifying widow(er)||Less than $196,000||Less than $198,000||$6,000 ($7,000 if 50 or older)|
|Between $196,000 and $206,000||Between $198,000 and $208,000||Reduced contribution|
|$206,000 or more||$208,000 or more||No contribution allowed|
|Married filing separately (if you lived with spouse at any time during year)||Less than $10,000||Less than $10,000||Reduced contribution|
|$10,000 or more||$10,000 or more||No contribution allowed|
You can begin contributing to your Roth IRA at any time from the beginning of the year until the tax deadline in mid-April. It’s up to you whether you want to make a lump-sum payment or set up periodic contributions throughout the year. The Roth IRA is available at any age as long as you don’t have an income that exceeds the permitted limits.
Want to stay in the loop?
Sign up to get notifications about new BrokerChooser articles right into your mailbox.