Determining the 2011 Roth IRA Contribution Limits
Knowing how to determine the correct contribution limits of Roth IRA investments is quite important, inasmuch as excess contributions are subject to a 6% excise tax. Understand that the higher the income earned by an individual, the higher the limitations to his or her contributions to the investment account.
Although Roth IRA contributions are immediately taxed as part of the employee’s gross salaries, any income earned by the investment is tax free. Hence, getting more funds invested under this investment tool, equates to more opportunities for the Roth IRA owner to amass tax-free funds. That is, if there are no contribution limits --- but since there are, non-observance of the contribution restrictions denotes abusive use of the investment benefit.
Step 1 - Determine the amount of investment phase out, which is calculated by extracting the difference between the maximum and minimum modified AGI.
Kindly view an enlarged image of our template and notice that the cells have drop down menus which users can simply click on.
The new MAGI: $ 179,000 for married and jointly filing, $ 122,000 for single, and $ 10,000 for married/filing separately but living with spouse. The same holds true for the minimum MAGI: $ 169,000 for married and jointly filing, $ 107,000 for single, and $ 0.0 for married/filing separately but living with spouse.
Our example is for a married couple filing jointly = $ 179,000 - $ 169,000 = = $ 10,000 (See Column I for the Value of investment phaseout.
Image Credit:Screenshot images were created for this article by the author.