Roth IRA Limits for 2011

The Roth IRA is an amazing tool, but it is subject to income restrictions.

Are you eligible?

You can make the full contribution ($5,000) if your modified adjusted gross income (MAGI) is less than:

  • $169,000 for married filing jointly
  • $107,000 if your status is single or head of household

You cannot make a contribution at all if your modified adjusted gross income (MAGI) is more than:

  • $179,000 for married filing jointly
  • $122,000 if your status is single or head of household

If your income falls below $169,000 (married filing jointly) or $107,000 (single or head of household), great! You can contribute the full amount ($5,000).

Sample Calculations

If you haven’t converted a Roth IRA, cannot take a traditional IRA deduction, had student loan interest, or tuition fees, then your MAGI is the simple formula (sum of all wage income) – (sum of your 401(k) contributions for the year).

1) MAGI Below the limit

For example, if you gross $60,000 per year and contribute 10% to your 401(k):

  • Sum of all wage income for the year = $60,000
  • Sum of your 401(k) contributions for the year = $60,000 x 0.10 = $6,000
  • MAGI = $60,000 – $6,000 = $54,000
  • Your MAGI is less than $107,000, so can contribute the full $5,000 to your Roth IRA.

2) Above the limit, without 401(k)

On the higher end of the scale, if you gross $122,500 per year and max out your 401(k):

  • Sum of all wage income for the year = $122,500
  • Sum of your 401(k) contributions for the year = $16,500
  • MAGI = $122,500 – $16,500 = $106,000
  • Your MAGI is less than $107,000, so you can contribute the full $5,000 to your Roth IRA.

3) Reduced contribution limit, even with 401(k)

Now what if you’re in the middle and subject to a reduced contribution limit?

  • Sum of all wage income for the year = $131,500
  • Sum of your 401(k) contributions for the year = $16,500
  • MAGI = $131,500 – $16,500 = $115,000
  • Your MAGI is between $107,000 and $122,000 so you can make a partial contribution to your Roth IRA.
  • $115,000 – (lower end) = $115,000 – $107,000 = $8,000
  • $8,000 / ($15,000 if single or $10,000 if married) = 0.533333 = A
  • Multiply the above result by $5,000 (the maximum contribution) = $2,666.67
  • Subtract the above result from the maximum contribution = $5,000 – $2,666.67 = $2,333.33
  • Your reduced contribution limit is the above result, or $2,333.33.

For a more exhaustive explanation, see: http://www.irs.gov/pub/irs-pdf/p590.pdf

Disclaimer: I am not a financial expert, nor by trade. I love running numbers through formula, but do not take my examples as a final case – talk to a certified financial expert or read the IRS documentation before making a final decision yourself.

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4 thoughts on “Roth IRA Limits for 2011

  1. It is ironic that by saving a ton in 401(k) options one is eligible for a Roth. We can save up to 66K combined in our various tax-deferred university options (we don’t)… and then another 10K in a Roth that we wouldn’t be eligible for if we weren’t saving in the university options.

    • I agree! It’s essentially allowing those who can save a ton…to be able to save even more, in tax-deferred accounts. I’m not complaining since it helped me be eligible for a Roth this year and probably next year as well, but it certainly seems backwards to me.

      I base my investment plan off of investing 20% of my gross income. To invest 76k for the year when one only wants to invest 20% of one’s gross income, that would mean a gross income of 380k. That’s insane! Plus, having that much of your retirement savings in tax-deferred vehicles wouldn’t necessarily be a good thing once you’re actually in retirement.

      • Should have said tax-advantaged… some of them you can’t do tax deferred, you have to pay the tax now (and those are the ones that affect the AGI), but some of them you have choice between traditional and Roth options.

        It’s a little scary that we could put ALL of DH’s take-home pay and then some away in these tax advantaged accounts. You know, if we weren’t spending so much money on goods and services.

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