Apr 30, 2020

Max Income Limits for Roth IRAs

By Goldman Sachs Personal Financial Management

Max Income Limits for Roth IRAs vs. Traditional IRAs

Although not as well-known as a traditional IRA, contributing to a Roth IRA is a solid retirement savings idea. Because the money going into your Roth IRA is contributed after taxes, distributions will be tax-free in retirement. If you follow the Roth IRA withdrawal rules, this tax-free status will apply to both your contribution amounts and any investment growth you may have experienced.

Not only can this be a hedge against potentially high tax rates during your retirement but, because the distributions aren’t counted by the IRS as income, it may enable you to keep your entire income in a lower tax bracket. This can save you money in Social Security taxes and Medicare premiums (which increase at higher income levels).

However, you first have to figure out if you are eligible to contribute to a Roth IRA, and the rules for Roth IRA income limits are a bit complex.

Roth IRA Income Limits and Maximum Contributions

Note that the 2019 contribution limits apply to the total of your contributions to both traditional and Roth IRAs. Each type does not have a separate limit.

IRS Filing Status 2019 Income* Limits 2019 Contribution Limits
Single, head of household or married filing separately (if you did not live with your spouse during the year) Less than $122,000 $6,000
$122,000 to $136,999 Contribution is reduced
$137,000 or more Ineligible
Married filing jointly or qualifying widow(er) Less than $193,000 $6,000 per person
$193,000 to $202,999 Contribution is reduced
$203,000 or more Ineligible
Married filing separately (if you lived with your spouse at any time during the year) $0 $6,000
$1 to $9,999 Contribution is reduced
$10,000 or more Ineligible

*modified adjusted gross income (MAGI) per the IRS

The figures for “married filing separately” are not mistakes. If you live with your spouse at any time during the tax year and file separately, the IRS severely limits the amount you can contribute to a Roth IRA account. However, in this situation, the IRS does allow you higher tax-deductible contributions to a traditional IRA, so that is a possible alternative.

Roth vs Traditional IRAs — Same Contribution Limits, Different Rules

The contribution limits in the chart are the totals that you can contribute to any type of IRA in a year. You could contribute all of it to a Roth IRA, all of it to a Traditional IRA or split your contributions among them. The primary benefit of a Traditional IRA is that earnings in the account, if any, grow on a tax-deferred basis. In addition, with a Traditional IRA, there are no income restrictions if you don’t have a work-sponsored retirement plan. Read more about the differences here.

What Is and Is Not “Income”

To contribute to a Roth IRA, you must make “earned income” during the tax year. Earned income is money paid for work you performed or profit distributions from a small business. It includes wages, salaries, tips, bonuses, commissions, and self-employment income. It also includes some less common items, like scholarships and fellowships, jury duty pay and accrued vacation payments.

Earned income does not include interest and dividends from investments, income from rental property, pension payments, Social Security payments or IRA distributions.

All of the Roth IRA income limits in the chart refer to modified adjusted gross income. To figure your modified adjusted gross income, use Appendix B, Worksheet 2 from IRS Publication 590-A to modify the adjusted gross income (AGI) from your tax return for Roth IRA purposes. Or ask your tax advisor for assistance.

Special Circumstances for Roth IRA Contributions

There are additional rules that may affect whether or not you are eligible for a Roth IRA or how much you can contribute:

  • You can’t contribute more than your earned income for the year. If your earned income is $3,000, your cap on Roth IRA contributions is also $3,000.
  • However, a nonworking spouse can contribute to an IRA based on the taxable compensation of the working spouse.
  • Individuals age 50 and over can contribute up to $1,000 extra per year to “catch up” for a maximum total of $7,000.

Learn the Rules to Live the Life You Want

There are rules governing not just Roth IRAs but all types of savings and investment account types. What’s important is to know how these rules apply to your situation and what combination may be best for you right now.

At Goldman Sachs personal Financial Management our advisors believe it’s not just about money—it’s about your entire life. Money is just fuel for living the life you want, which means something different for each person.

Every individual has different intentions, goals, preferences, strengths, and priorities, as well as different trade-offs they are willing to make. Our advisors want to understand yours thoroughly before they design a financial plan for you.

Speak with a Golman Sachs Personal Financial Management advisor today to learn more.

To qualify for the tax free penalty free withdrawal of earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59 ½.

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ABOUT THE AUTHOR

Goldman Sachs Personal Financial Management

United Capital Financial Advisers, LLC d/b/a Goldman Sachs Personal Financial Management (“GS PFM”) is a registered investment adviser and an affiliate of Goldman Sachs & Co. LLC and subsidiary of The Goldman Sachs Group, Inc., a worldwide, full-service investment banking, broker-dealer, asset management, and financial services organization.

The information contained herein is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered investment advice. GS PFM does not provide legal, tax, or accounting advice. Clients should obtain their own independent legal, tax, or accounting advice based on their particular circumstances. Please contact your financial adviser with questions about your specific needs and circumstances.

Information and opinions expressed by individuals other than GS PFM employees do not necessarily reflect the view of GS PFM. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice.