Roth IRA Income Limits 2010: Income Limits Highly Compensated Conversion

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Roth IRA Income Limits 2010: Income Limits Highly Compensated Conversion
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2010 Roth IRA Contribution Limits

For 2010, the maximum contribution to a Roth IRA is $5,000. The full Roth contribution amount will be adjusted for inflation beginning with the 2011 Roth IRA contribution limits. Therefore, the maximum allowable Roth IRA contribution for 2011 will be higher or lower depending upon how much inflation there is during 2010. The IRS will release the new contribution numbers late in 2010.

Taxpayers over age 50 can make a $1,000 catch-up contribution to a Roth IRA, for a total maximum 2010 Roth contribution of $6,000.

Roth IRA contributions and traditional IRA contributions are totaled from the same IRS limit, so an investor may make a total of $5,000 in contributions ($6,000 for those 50 and older) in both IRA accounts. In other words, there are not separate limits for each type of IRA. If a person makes a $4,000 contribution to their Roth IRA, then they cannot contribute more than $1,000 to a traditional IRA in order to stay within the cumulative IRA maximum contribution.

2010 Roth IRA Income Limits

Roth IRA contributions cannot be made by taxpayers with high incomes. The IRS sets income limits to prevent highly compensated employees from making contributions to Roth IRAs. These tax numbers are adjusted every year. The Roth IRA income limits for 2010 are $177,000 for married filing joint taxpayers, and $120,000 for single taxpayers. However, contributions to a Roth IRA are phased-out at lower income levels.

In order to make a full 2010 Roth IRA contribution, joint filing taxpayers must have a MAGI below $167,000. Taxpayers filing Single, must have income below $105,000 to make a full Roth IRA contribution in 2010. Taxpayers with modified adjusted gross incomes above these limits, but below the maximum income limit may make a reduced Roth IRA contribution. The amount of phased-out Roth contributions that can be made depends on exactly where within the range the taxpayer falls, with higher incomes allowed smaller deductions.

2010 Roth IRA Conversion Rules

In 2010, there is a special exception to the usual income limits on who can convert a traditional IRA to a Roth IRA that allows high-income taxpayers to make a Roth IRA conversion when they would normally be prohibited by the income limits.

Congress has eliminated the income limit on Roth IRA conversions. Highly-compensated taxpayers may now convert Traditional IRA accounts to Roth IRAs regardless of income. Special tax treatment for 2010 Roth IRA conversions allows taxpayers to spread the taxes due on the conversion out over two years making the tax burden much easier to handle by requiring only one-half of the taxes to be paid during 2011 and the other half of the Roth conversion taxes to be paid in 2012.

2010 Traditional IRA Limits and 2010 401k Contribution Limits are also of interest.

The IRS website can be found at www.irs.gov (Note, “gov” not .com or .net).

2011 Roth IRA Income Limits

The new Roth IRA income limits for 2011 have been published.

For 2011, taxpayers who are married filing jointly may make a full Roth IRA contribution if their modified AGI is less than $169,000. A reduced contribution can be made for those with incomes between $169,000 and $179,000 and no contribution is allowed for those with incomes over $179,000.

Taxpayers who are filing single may make a full Roth IRA contribution with an income below $107,000. Reduced contributions are allowed for filers with incomes between $107,000 and $122,000. No contribution is allowed for single filers with incomes over $122,000.

Source: IRS Publication 590 - Chapter 2