Traditional and Roth IRA Contribution Limits
I know this is somewhat elementary stuff but I’ve been getting a lot of searchers looking for these contribution limits and they’re going to pages that don’t display it in a convenient and easily scannable format - thus, I’ve written this entirely new post to address these limits.
Contribution Limits:
| Year | Under 50 Limit | Over 50 Limit |
|---|---|---|
| 2006-2007 | $4,000 | $5,000 |
| 2008 | $5,000 | $6,000 |
Roth IRA Income Phase-out:
| Year | Floor | Ceiling |
|---|---|---|
| 2006 Single | $95,000 | $110,000 |
| 2006 Married F.J. | $150,000 | $160,000 |
| 2007 Single | $99,000 | $114,000 |
| 2007 Married F.J. | $156,000 | $166,000 |
| 2008 | Pegged to inflation, increasing in $500 increments | |
Some rules:
- The Over 50 Limit takes into account a catch-up contribution you’re allowed to make if you turned 50 at any point during the year, so if you turned 50 on December 31st, then you’re allowed to contribute the Over 50 Limit. Your contribution is also limited by your income, you are permitted to contribute the lesser of your income or the limit (so if you made $500 in income, you’re only allowed to contribute $500 to your IRA).
- Traditional and Roth IRAs share the same limits, thus if you contribute $1,000 in 2007 to your Traditional IRA, you may only contribute an additional $3,000 to your Roth IRA (assuming you’re under 50).
- The Roth IRA income phase-out is linear, so if you are Married Filing Jointly, under 50, and your total income were $161,000 (2007), you are permitted to contribute $2,000 (nice catch guys!) to your Roth IRA. There are two special cases though: 1) when calculating your limit, round up to the nearest $10; 2) If your limit is under $200 but still positive, round up to $200.
31 responses to “Traditional and Roth IRA Contribution Limits”
Foobarista responds:
Posted: February 7th, 2007 at 3:43 pm
One “2010 Trick” that people with incomes above the Roth Phaseout can do is to make nondeductible contributions to a Traditional IRA and roll them into a Roth IRA in 2010. If they only roll over the contributions, their rollover won’t be taxable, although if they roll over investment gains, that part of the rollover will be taxable. This is a way to “pre-fund” Roth IRAs and get around the phaseouts.
Disclaimer: check with a tax adviser for your own situation, etc.
Blaine Moore (First Time Home Owner) responds:
Posted: February 7th, 2007 at 5:02 pm
Traditional IRAs and Roth IRAs share the same limit? I thought that they had their own limits since one is pre-tax and one is post-tax income…
not confucius responds:
Posted: February 7th, 2007 at 6:08 pm
foo, great comment… i knew about the 2010 “trick,” but didn’t know about the taxability of the investment gains…
indio responds:
Posted: February 7th, 2007 at 10:08 pm
Can you make the maximum contribution to a Roth IRA and a traditional IRA in the same year?
jim says in reply:
Posted: February 7th, 2007 at 10:15 pm
Foobarista: If you do the Traditional to Roth conversion, the amount you convert is subject to tax regardless of whether its a contribution or earnings - it’s only fair that way.
Blaine: No, they share the same limit of $4,000. It’s also shared by SEP-IRA employee contributions as well.
indio: Your maximum (Roth IRA contribution) + (Trad. IRA contribution) <= $4,000.
Foobarista responds:
Posted: February 7th, 2007 at 10:36 pm
If it’s a NONdeductible traditional IRA contribution - meaning you’re funding a T-IRA with post-tax money - you don’t pay taxes on the contribution part when you roll it into a Roth in 2010. (If you had to, you’d be double-taxed on the contribution.)
This strategy is only interesting if you’re at an income level where you can’t make a deductible IRA contribution - or Roth contribution - anyway.
MikeK. responds:
Posted: February 8th, 2007 at 4:30 pm
Question:
Do these limits apply if you do not have a compay sponsored 401k plan?
jim says in reply:
Posted: February 8th, 2007 at 5:26 pm
The 401k is independent of your IRA.
Steven T responds:
Posted: February 9th, 2007 at 2:48 am
I believe your phase-out table is incorrect.
I’ve checked several sources, and they all indicate that for a single filer, the phase out range is $95K to $110K, not $115K.
jim says in reply:
Posted: February 9th, 2007 at 8:42 am
Good catch Steven, you’re absolutely correct, thanks!
Joseph responds:
Posted: February 11th, 2007 at 10:05 pm
Is the amount you convert from a Traditional IRA to a Roth IRA counted as part of your allowed contribution for that year? e.g. if you convert $4k of an existing Traditional IRA to Roth IRA in 2007 does that mean you’ve reached your allowed contribution for 2007 or can you contribute another $4k to the Roth?
jim says in reply:
Posted: February 11th, 2007 at 10:12 pm
I don’t think the conversion counts as your contribution for that year.
Mighty Bargain Hunter » Roundup for week of 4 February 2007 responds:
Posted: February 13th, 2007 at 11:39 am
[...] Blueprint for Financial Prosperity tablifies traditional and Roth IRA contribution limits. [...]
Steve responds:
Posted: February 20th, 2007 at 10:15 am
What if you are in the phase out range of income AND over 50? Does the extra $1000 get tacked onto the limit or does the phase out limit override the catch-up?
jim says in reply:
Posted: February 20th, 2007 at 11:48 am
The $1000 gets tacked onto the limit and the phase out still goes over that same span.
Andrew responds:
Posted: February 20th, 2007 at 12:42 pm
Great post. I’ve been looking for this income-limit info for months. But isn’t there an error in you third bullet? Shouldn’t that example pertain to someone over 50 limit is (50% * 5000); or only a $2000 limit for someone earning 161000 under 50 (50% * 4000)?
Re. 2010 rollover: I had read that you pay tax based on the % of your IRA assets that you are rolling over. And how does this apply if some of your IRA assets are already in a ROTH? And does this percentage apply to an individual’s assets or to a couple’s? Can you direct to an authoritative site or source? This is somewhat confusing.
Sean responds:
Posted: February 20th, 2007 at 12:44 pm
I think your “phase-out” math in the example used is incorrect.
You used the 2007, Married filing jointly contribution of $2500 is income was $161k.
If it’s linear, wouldn’t that be a $2000 contribution?
161k - 156k = 5k, which is halfway through the phase out, thus half of the contribution (of $4k) would be allowed: $2000, not $2500.
jim says in reply:
Posted: February 20th, 2007 at 12:59 pm
You guys are right, I did the math for the Over 50 instead of under 50 Limits, Thanks!
Cedric de La Beaujardiere responds:
Posted: March 2nd, 2007 at 3:28 pm
I think I just read that your IRA contributions are also limited by your income, such that, for 2006, and you’re under 50, you can only contribute up to the lesser of $4000 and your income for 2006 (MIN[$4k,Income]). Is that right? If so, If you had no income for 2006, can you convert $4000 from a Traditional IRA to a ROTH IRA, treat that as income, and thus additionally contribute the maximum $4000 to your IRA?
Thanks
P.S. nice anti spam trick
Joseph Spitzer responds:
Posted: March 20th, 2007 at 6:43 am
If an individual has zero income for a given year, can he still make a full Roth IRA contribution?
Leslie responds:
Posted: March 20th, 2007 at 9:34 am
Help! How do I calculate the phase-out? If I made 106k last year but contributed the full 4k, how do I know how much to pull out?
jim says in reply:
Posted: March 20th, 2007 at 9:48 am
It’s linear, so you’re 73.3% into the phase out so you can contribute only 26.7% of the usual $4,000 annual limit, which is $1066.67. Next, you just round up to the nearest $10, so you can contribute $1070 towards your Roth IRA last year. Please consult with a tax professional, that number is just my interpretation of the rules and may not be correct, a tax professional will be able to give you a definitive answer.
If you made the contribution after the 1/1/2007, you can just send a letter to your brokerage and ask them to reclassify the excess to this year. If you think you’re going to be over again this year, then you have to figure out how to withdraw it. Again, consult a tax professional please before making any decisions.
Lewis responds:
Posted: March 21st, 2007 at 6:34 pm
I have a Traditional IRA that I want to convert to a Roth and if I do it before April 15, which AGI limits do I need to follow 2006 or 2007. The conversion will be taxable in 2007, right?
Sandy Rice responds:
Posted: April 28th, 2007 at 4:50 pm
Hello, there are a lot of middle income Americans who can only contribute to a nondeductible IRA. If they can roll this money into a Roth IRA and use it tax free in retirement or in their estate planning, it is a perfect opportunity if they are not taxed when they roll the nondeductible IRA into the Roth without being taxed.
Does anyone know that for certain? SR
» Google Asks About Roth IRAs on Blueprint for Financial Prosperity responds:
Posted: May 1st, 2007 at 10:00 am
[...] do I calculate the Roth IRA phase out contribution? From my past article on Roth and Traditional IRA contribution limits: The Roth IRA income phase-out is linear, so if you are Married Filing Jointly, under 50, and your [...]
Meeting Employer’s 401K Match: Now What? - Plus6 …a personal finance blog responds:
Posted: May 25th, 2007 at 10:20 am
[...] Roth IRA. The Roth IRA offers tax free growth. You save with after tax money, and all deposits and earnings are tax free when you withdrawal them in retirement. Check out a few posts on max income levels for Roth and tax deductible IRAs here and here. [...]
Setting and Achieving My Financial Goals ∞ Get Rich Slowly responds:
Posted: November 29th, 2007 at 4:18 am
[...] intend to max out my plan by the middle of December. In 2008, the contribution limits on Roth IRAs increase to $5,000/year — I hope to invest this [...]
Joe responds:
Posted: January 2nd, 2008 at 11:50 am
SandyRice & Foobarista:
When you rollover a non-deductible IRA to a Roth IRA a portion will be non-taxable and the other portion is ordinary income. For example, you have $10,000 in your non-deductible IRA which consists of $4000 in contributions and $6000 in investment growth. If you convert the whole account to a Roth then you incur $6,000 ordinary income. If you only convert $4,000 of the account (or 40%) then you will incur $2,400 ordinary income. You cannot designate that $4,000 rollover as your contributions and say that the rollover is tax free.
Joe Parker responds:
Posted: January 12th, 2008 at 3:53 pm
Can I contribute to my 401k AND a Roth IRA in the same year? (our income is below 150K-married) Joe
Lisa responds:
Posted: February 4th, 2008 at 2:56 pm
I have $3200 nondeductiable T-IRA, total $4000 T-IRA. My T-IRA income at the end of 2007 is $4700. I converted $4000 T-IRA to Roth IRA in 2007. Can I still contribute another $4000 into R-IRA? Thanks.
Ron responds:
Posted: March 18th, 2008 at 12:04 pm
I understand that if I now put in the full amount (non-deductable) in a 2008 Roth IRA ($6000 as am over 50), but it turns out by the end of the year I have earned within the phase-out band or over the maximum ceiling for investing in a Roth IRA, I will need to recharacterize. What is the downside for gambling I will be able to make the Roth IRA investment as opposed to a Traditional IRA; that is, what is the penalty - lost income, interest, penalty, etc. - of needing to recharacterize?