 Income
limits for Roth IRA contributions
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 Dear
Tax Talk,
If I contribute to a Roth IRA, and then there is a change in my
income that puts me over the AGI limit for Roth IRAs, what happens
to my contribution? Should I wait until filing the income tax before
making a contribution to my IRA? Thanks. -- Yutdhasak
 Dear
Yutdhasak,
A Roth IRA is an individual retirement plan similar
to a traditional IRA. However, unlike a traditional IRA, contributions
are not deductible and usually all distributions are tax-free.
If you only contribute to Roth IRAs, your contribution
limit for 2005 will generally be the lesser of:
- $4,000 or
- Your taxable compensation for the year.
If you are 50 or older in 2005, you can make an additional
$500 contribution, provided you have the compensation. However,
if your modified AGI is more than a certain amount, your contribution
limit may be reduced.
Generally, you can contribute to a Roth IRA if you
have taxable compensation at least equal to the contribution and
your modified AGI (see Publication
590 at page 54) is less than:
- $160,000 for married filing jointly or qualifying widow(er),
- $10,000 for married filing separately and you lived with your
spouse at any time during the year, and
- $110,000 for single, head of household or married filing separately,
and you did not live with your spouse at any time during the year.
The $4,000 or $4,500 limit is reduced if your income
is within $10,000 of the above limits for married couples and $15,000
for unmarried or separated living apart. See Table 2-1 of Publication
590 on page 53 for more information.
You can make a Roth IRA contribution at any time before
the due date of your individual return (April 15), not including
extensions. If you go over the income limits for 2005, you can redesignate
your contribution as being for tax year 2006, provided that you
did not already contribute the maximum for 2006.
If you cannot redesignate, you need to withdraw the
excess and any associated earnings before the due date of your return,
including extensions. The earnings are taxable in the year that
you made the excess contribution. If you think you're at or near
the limits, you probably should wait until you figure out your 2005
return to make the contribution.
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