One of our members proposed a question about my latest article requesting clarification on the contribution limits for the Roth IRA. I have researched this issue and to the best of my ability, believe to have addressed his question. Please review the post below for more information about his question as well as my response to it.
Question:
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Can you explain the following specification:
Single filers: Up to $99,000 (to qualify for a full contribution); $99,000-$114,000 (to be eligible for a partial contribution)
Joint (Married) filers: Up to $156,000 (to qualify for a full contribution); $156,000-$166,000 (to be eligible for a partial contribution)
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Basically, if you are single and make less than $99,000 a year (all income, not just salary), then you are able to contribute the maximum amount for the year (i.e. $5000 for 2008). In addition to that, if you are married and your combined income between you and your spouse is less than $156,000, then you both (separately) can contribute the maximum amount for the given year (i.e. $5000/person for 2008).
In the case that you make between $99,000 - $114,000 (filing single) or $156,000 - $166,000 (filing married), you have to use the following formula below to determine your maximum Roth IRA contribution for that year:
Reduction Factor (Single) - 99,000
Reduction Factor (Married) - 156,000
Reduction Factor (Married filing separate return) - 0
Maximum Contribution for the year = $5000 for 2008
Less Contribution = (((Annual Income - Reduction Factor) / (15,000)) * (Maximum Contribution))
Contribution = (Maximum Contribution) - (Less Contribution)
As usual, I like to provide the numbers, so see the information below for a more detailed explanation:
If Thomas is single and filing his tax with the single designation and he makes 110,000/year, below is how he would find out his max contribution to his Roth IRA for year 2008:
Less Contribution = ((110,000 - 99,000) / (15,000)) * (5000)
Less Contribution = 3666.67
Contribution = (5000) - (3666.67)
Contribution = $1333.33
The maximum contribution that Thomas can make (legally) to his Roth IRA is $1333.33. All of this information used to research this came directly from the irs.gov website at the following link:
Contribution limit reduced
http://www.irs.gov/publications/p590/ch02.html#d0e9412
As always, I want to encourage members of the group (as well as others) to feel free to post questions and give feedback on these articles. I really do appreciate to know that we all are sharing knowledge to help each other make more financially sound decisions. Stay Disciplined!
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