What Is the Income Limit for a Roth IRA? A Complete Guide on Roth IRA Contributions

What Is the Income Limit for a Roth IRA? A Complete Guide on Roth IRA Contributions
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Point Editorial

A Roth Individual Retirement Account, or Roth IRA, is a variation of the traditional IRA. Both encourage long-term saving, but a Roth IRA allows you to withdraw any contributions tax-free whenever you choose. 

For 2021, the maximum monetary amount that a person can annually contribute to a Roth IRA is $6,000, or $7,000 for individuals 50 and older. 

Eligibility for a Roth IRA mainly depends on your income. 

To better understand what Roth IRAs are, their eligibility rules, and their contribution limitations, read on as we explore each facet in detail. 

Understanding a Roth IRA

Typically, individuals set up traditional IRAs or Roth IRAs through their employer. Your modified adjusted income, or MAGI, and your tax-filing status determine your eligibility for a Roth IRA. MAGI refers to the total amount of income earned by your household, including any tax exemptions and other deductions such as loan payments and education expenses. 

Again, for 2021, the maximum amount you can contribute annually to a Roth IRA is $6,000. However, if  you're over 50, you can contribute  $7,000. 

While there are no tax breaks while you work and contribute money to the account, the tax breaks come when you finally decide to retire and collect the funds. With Roth IRAs, you pay taxes annually, which means you don't have to worry about doing so once you retire. 

As of December 2019, there are no age restrictions associated with IRA contributions. Regardless of your age, you can still add to your account. 

Roth IRA contribution limits for 2021

You can make contributions into your account up until Tax Day, April 15, 2022. The following table shows your contribution limits based on your filing status and MAGI. If you exceed your limit, the IRS will charge you a decent penalty. 

Married and filing jointly: 

Contribution limit 2021 MAGI
Less than $198,000 $6,000/yr ($7,000 if age 50+)
$198,000 - $207,999 Can make a partial contribution
$208,000 or more No contributions allowed


Married and filing separately:

Contribution limit 2021 MAGI
Less than $10,000 Can make a partial contribution
$10,000 or more No contributions allowed

Single, head of household or filing separately:

Contribution limit 2021 MAGI
Less than $125,000 $6,000/yr ($7,000 if age 50+)
$125,000 - $140,000
Can make a partial contribution
$140,000 or more No contributions allowed

Online calculation platforms also exist to help you determine your contribution limit. Finally, it is important to remember that even if you can only make partial contributions, that money is tax-free upon retirement, too. 

FAQs

Can I contribute to my Roth IRA if my income is too high?

Again, Roth IRAs have an income threshold. If your income is on the higher end of the pay scale, you can bypass this threshold and contribute money to a traditional IRA account instead. However, withdrawals from a traditional IRA are taxable. 

How much can I contribute to my IRA annually?

You can contribute up to $6,000 annually or $7,000 annually if you're 50 or older.

However, in light of the global pandemic and its resulting hardships, in 2020, the federal government passed the CARES Act, allowing individuals who are 59 1/2 years or younger to contribute up to $100,000 with no penalties. 

Can I withdraw money from my IRA?

Yes, you can withdraw funds from your IRA without taxes and penalties, but you must meet certain conditions before doing so. Generally speaking, you must be 59 1/2 years or older, and the account must be at least five years old. If you withdraw before that age, you'll have to pay a 10 percent penalty as well as taxes. 

However, there are exceptions to this. If you are younger than 59 1/2 and withdraw money from your IRA for educational purposes, medical expenses, or buying your first home, you are not subject to penalties.

Can I transfer my IRA from another institution?

Yes. Your financial institution holds onto your IRA savings. You can request a transfer of your IRA at the bank, and this is a tax-free action. There is no limit to how much you can transfer. 

Point's contributions

Overall, an IRA's purpose is to help you save for retirement, but there are ways to earn benefits along the way while preparing for the distant future.  

Enter Point Card. You work hard for your money, and Point works hard for you in return. Point is an alternative tool for those who want to use their money as they see fit while receiving exclusive benefits, including unlimited cash-back on all purchases and bonus cash-back on subscriptions, food delivery, rideshare services, and coffee shops. Plus, Point Card comes with car rental and phone insurance, not to mention travel benefits and fraud protection with zero liability, too. 

Put simply, Point is an excellent tool for intelligently navigating your financial journey as well as preparing for life's next chapter, whenever that may occur. 

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