Retirement accounts get added
attention during tax-filing season. That's because you
must put money in an individual retirement account no
later than the April return-filing deadline. It doesn't
matter whether your contribution is to a traditional
IRA (tax-deductible or nondeductible) or a Roth IRA.
If you opt for a Roth account, you
won't get an immediate tax break, but you won't pay
any tax on your money when you eventually take it out.
The Internal Revenue Service, however, has specific
rules on just who can have a Roth IRA and how much money
can be contributed each year.
In general, Roth contributions are the same as
traditional IRAs. Last year, you were able to contribute
up to $4,000. The maximum annual contribution stays
at that amount this year.
If you were 50 or older last year, you
could have put in an extra $1,000. That catch-up contribution
amount remains the same for 2007.
However, you can't put more in any IRA
than you make. So if your income is only $1,500, then
$1,500 is the most you can contribute to a Roth.
Speaking of income, you must earn money to open any
IRA. That means your only income can't be from unearned
sources, such as investments. You must get paid wages,
a salary, tips, professional fees or bonuses.
There is an exception that allows Roth
accounts for nonworking spouses. If you and your spouse
file a joint return but one does not work, the employed
spouse can open and contribute to a Roth IRA for the
Generally, the contribution limits for
a spousal IRA are the same as for the account held by
the working wife or husband. Check Chapter 2 of IRS
Publication 590, Individual Retirement Arrangements
for complete guidelines on opening a Roth spousal IRA.
But if you make too much money, you're
not eligible to open a Roth or to contribute to the
account you opened when you were earning less. For a
Roth, your earned income (with some deductions you might
have taken, such as for student loan interest, added
back in), must be less than:
- $160,000 if you're married filing jointly
- $110,000 if you file as single, head
of household, or married filing separately and did
not live with your spouse during the year
- $10,000 if you lived with your spouse
at any time during the tax year but decide to file
And even if you're not quite at the top
of these pay ranges, your Roth contribution could be
limited if your modified adjusted gross income falls
within these limits:
- $150,000 to $160,000 for married couples
- $95,000 to $110,000 for single or head-of-household
taxpayers or married couples filing separately and
who did not live with their spouse
- $0 to $10,000 for married couples filing
separately who lived together at any time during the
You still can add to your Roth in these
cases, but not the full allowable amount. Publication
590 contains work sheets and examples to help you determine
your reduced Roth IRA contribution amount.
There is no age limit for Roth accounts. Whereas traditional
IRA contributions are barred for individuals older than
70½, you can be any age and still contribute
to a Roth IRA.
And you can leave money in your Roth for
as long as you live. The IRS doesn't require minimum
distributions from Roths as it does with traditional
If you find a Roth is the right IRA for
you, you've got until the tax-filing deadline (which
falls on April
17 this year) to open one or contribute to your
existing account and have it count toward the prior
year's limit. After that, the money will be counted
as a contribution in the next filing season.
For complete information on Roths and definitions
of terms, check out IRS
Publication 590, Individual Retirement Arrangements.
writer Kay Bell writes Bankrate's tax stories from her
home in Austin,
Texas, and blogs on tax topics at Don't
Mess with Taxes.
Updated: March 23, 2007