IRS Tax Tip: Roth IRA Contributions

Confused about whether you can contribute to a Roth IRA? The IRS suggests checking these simple rules:

Income

To contribute to a Roth IRA, you must have compensation (e.g., wages, salary, tips, professional fees, bonuses). Your modified adjusted gross income must be less than:

  • $160,000 — Married Filing Jointly.
  • $10,000 — Married Filing Separately (and you lived with your spouse at any time during the year).
  • $110,000 — Single, Head of Household, or Married Filing Separately (and you did not live with your spouse during the year).

Age

There is no age limitation for Roth IRA contributions. Unlike traditional IRAs, you can be any age and still qualify to contribute to a Roth IRA.

Contribution Limits

In general, if your only IRA is a Roth IRA, the maximum 2004 contribution limit is the lesser of your taxable compensation or $3,000 ($3,500 for those age 50 or over).

For 2005, this amount increases to $4,000 ($4,500 if 50 or older in 2005).

The maximum contribution limit phases out if your modified adjusted gross income is within these limits:

  • $150,000-$160,000 — Married Filing Jointly
  • $0-$10,000 — Married Filing Separately (and you lived with your spouse at any time during the year)
  • $95,000-$110,000 — Single, Head of Household, or Married Filing Separately (and you did not live with your spouse)

Contributions to Spousal Roth IRA

You can make contributions to a Roth IRA for your spouse provided you meet the income requirements.

When to Make Contributions

Contributions to a Roth IRA can be made at any time during the year or by the due date of your return for that year (not including extensions). Roth IRA contributions are not tax deductible and are not reported on your tax return. On the other hand, you do not include in your gross income, and therefore are not taxed on, any qualified distributions or distributions that are a return of your regular Roth IRA contributions or that are rolled over into another Roth IRA.

For complete information and definitions of terms, get Publication 590, Individual Retirement Arrangements. You can download Publication 590 and its Instructions or order them by calling 1-800-TAX-FORM (1-800-829-3676).

You may like these other stories...

Many senior US tax professionals believe that a streamlined audit process will be the top benefit resulting from the IRS Transfer Pricing Audit Roadmap, a new toolkit organized around a notional 24-month audit timeline,...
Tax accounting to be simplified for money-market fundsThe US Securities and Exchange Commission (SEC) voted 3-2 on Wednesday for sweeping changes to institutional money-market funds, Emily Chasan, senior editor of...
By Cathy Stopyra and Todd SimmensUnderpayment interest, refund interest, and penalties charged to businesses are just a few of the considerations the IRS calculates when determining taxation for a given company. Though...

Upcoming CPE Webinars

Jul 31
In this session Excel expert David Ringstrom helps beginners get up to speed in Microsoft Excel. However, even experienced Excel users will learn some new tricks, particularly when David discusses under-utilized aspects of Excel.
Aug 5
This webcast will focus on accounting and disclosure policies for various types of consolidations and business combinations.
Aug 20
In this session we'll review best practices for how to generate interest in your firm’s services.