Roth IRA contribution limits

Roth IRAs, as with traditional IRAs, have limits on how much can be contributed each year. For 2004 that amount was $3,000, which can be invested up until April 2005. For

2005 and 2006 the limit is $4,000. Each year, participants have until the tax deadline of April 15 to invest for the previous tax year. Investors should keep in mind, however, that the sooner they put the maximum amount into the account the more time there is for earning greater returns. With more capital, compounded interest is earned more quickly.

Additional contribution limits available for people over 50 years

Older investors, those who will turn 50 by the end of the calendar year, can add an additional $500 for 2004 and 2005 and an additional $1000 in 2006. The government has allowed for what they call “catch up” contributions for those closer to retirement to put away more money for that time.

Contribution limits determined by household income

In order to invest in a Roth IRA you must have some sort of income either from wages from an employer or self-employment income. Your Roth IRA contributions are limited by the amount of money you make as a single person or married couple filing taxes jointly.

Other roth IRA contribution limitations

Maximum contribution limits

The maximum that can be earned each year is $95,000 for single investors and $150,000 for those who are married, filing jointly. Gradually as income increases to $110,000 for a single person or $160,000 for a married couple the amount that can be contributed to the Roth IRA diminishes. Additionally, contributions cannot be more than your income from compensation for work.

Adjusted gross income limits

Income limitations are not just about earned income. If the adjusted gross income of an investor or couple is too large, the amount that can be contributed to the Roth IRA is reduced. It may seem that then contributions can be made in a spouse’s name to avoid the limits. This does not work, because under a Spousal Roth IRA the income can come from one or both spouses. The limitations simply take into account household income for the two people. This also is a consideration when looking at other investments made by one of the spouses. Even if a spouse with little earned income has a Roth IRA, the amounts the other spouse contributes to other investments are considered in the limits.

Few age restrictions on contribution limits

Age is another factor that makes a Roth IRA a desirable plan for some investors. Contributions can be made to the same Roth IRA all the way until the year where the investor turns 70 ½ years of age. Once that age is surpassed, if desired, a new Roth IRA can be opened and funds invested up to the contribution limits. Investors can also begin as early as they like, as long as the income requirements are met and that income is compensation for work, and not just from gifts or an inheritance.

Interplay with other investment plans

Finally, a Roth IRA is affected by other retirement investments by limiting pre-tax contributions. For example, contributions cannot be made to a traditional IRA if the investor is part of an employer sponsored 401k plan. But a Roth IRA, made with post-tax dollars does not impact the 401k contributions or those made to other IRAs.