401k
401k Information

Ira Income Limits

[If you are an investor who makes more than the income limit for contributions to a Roth IRA - this MAY be for you!]

Many people have Roth IRA’s that they opened in the late 1990′s. For some, they have been unable to contribute to their Roth IRA since then, due to income limits. In 2009 and 2010, the income limit for someone to contribute to a Roth IRA (married, filing jointly) is 6,000 and 7,000, respectively. [This limit is based on Adjusted Gross Income (AGI) and the amount that someone can contribute starts to phase out at 6,000 (2009) and 7,000 (2010)]

In 2009 and 2010, the maximum contribution is 00 for each year (this amount is higher if you are over 50).

There has always been both an income limit for contributions and a maximum amount that could be contributed. It has been indexed for inflation each year.

Conversions from a Traditional IRA to a Roth IRA are a different story. The income limit has been 0,000 since the inception of the Roth IRA. In 2010, this limit was removed (much more on this in other postings). In other words, in 2010 anyone, regardless of income, can convert funds in a Traditional IRA to a Roth IRA.

This has introduced an interesting “work around” to the AGI limit for contributions mentioned at the top of this article.

While I have seen it mentioned in some blogs and other articles, I am surprised that I haven’t seen it more often in the mainstream media.

If you make more than the income limit to contribute to a Roth IRA, this may be for you…………….

Here is how it works:

1. Open a Traditional IRA

2. Make the maximum contribution for 2009 (by April 15th) and 2010 – 00 for each year, unless you are over 50

3. Don’t deduct the contribution (I will explain in a second)

4. Immediately convert the Traditional IRA to a Roth IRA

5. Voila! You have just gotten ,000 into a Roth IRA when you otherwise would have been forbidden to do so (based on your income)

Since you didn’t deduct the contribution, there are no taxes due on the conversion (unless there was some interest or gain between the time you opened the Traditional IRA and the conversion – that is why I stressed converting immediately after the account is opened).

Yes. I know. Seems too good to be true! Well, there is at least one “catch”….

Non-deductible IRA’s are aggregated with all other IRA’s to determine what proportion of the conversion would be taxable. If you have an IRA rollover from a previous employer (or any IRA that has pre-tax money in it), then at least a portion of the conversion would be taxable.

For that reason, this strategy works best when an investor has NO OTHER TRADITIONAL IRA MONEY.

401(k)’s that are at previous employers don’t count against you…..as long as they are still in the 401(k) – and not in a Rollover IRA.

Frequently Asked Questions

  1. QUESTION:
    Roth IRA income limits- What happens if you go over?
    What happens if you exceed the income limits of a roth IRA after years of contributing to it? Can you convert it to traditional? how does this work with taxes?

    • ANSWER:
      I do believe the previous two posts erroneously thought you contributed in a year in which you exceeded the income limits. Your income in any given year does not in any way affect previous years of contributions.

      You would not under any circumstance want to convert a Roth IRA to a traditional IRA. You’ve already paid taxes on your Roth contributions, and there would be no advantage to converting to a traditional IRA.

      Simply, in any year when you have exceeded the income limits, you cannot make a Roth contribution for that period. All your previous contributions are safe, and should your income drop in the future, Roth limits rise, or you get married and suddenly find yourself eligible to contribute again, your Roth account will be ready willing and able to accept your further contributions.

      moneyguy976@gmail.com

  2. QUESTION:
    To which tax year do I base my Roth IRA income limits on for current contributions?
    If I am trying to decide to contribute to a Roth IRA right now (8/28/2008) obviously this will be a contribution for tax year 2008. Do I base the income limit upon tax year 2007 since I have no idea what my full income for 2008 will be? Or, If I am concerned that I may breach the income threshold, do I need to wait until late March early April 2009 to make my 2008 contribution so that I know what my MAGI for the 2008 tax year really is?

    • ANSWER:
      Your first choice should be based on how you choose to invest your money and whether now or later is a better time to invest.

      Since you have till 4/15/09 to contribute for 2008, do not invest more than you are sure you will earn in 2008. If you earn more, you can add to it. Contributing too much creates a problem that you will do well to avoid.

      Any funds contributed between 1/1/09 and 4/15/09 should be clearly designateed as a”prior year contribution.”

  3. QUESTION:
    Are the income limits for a Roth IRA increasing anytime soon?
    I recently got married and I noticed that couples making a combined income of 0,000 or more are signifigantly limited or prevented from investing in a Roth IRA. While we are not at that income level yet, we will be within the next few years. I am just wondering if that 0,000 cap will increase before we get there.

    • ANSWER:
      If you hit the max, consider contributing to a nondeductible traditional IRA which can be converted to a Roth in 2010 regardless of income level.

  4. QUESTION:
    Roth IRA question. Close to the income limits. How to decide on monthly contributions.?
    My wife and I have Roth IRA’s. We’re close to the income limits. I would like to setup a monthly contribution rate, but I don’t know if I will over contribute because of year end bonuses.

    Should I contribute once, at the end of each year (I know I’ll miss out on the interest)?

    I also read about being able to contribute some into a roth and some into a traditional IRA. If anyone can clear this up it would be helpful.

    Either way, what would happen if I over contribute?

    Thank you.

    • ANSWER:
      If you need to know the income limits for Roth IRA eligibility you can look here.ttp://personal.fidelity.com/products/retirement/getstart/aboutira.shtml.cvsr

      Should you end up making too much and not qualify for a Roth IRA you can either withdraw the money as an excess contribution, or complete a re-characterization form to move the contribution to a traditional IRA. Depending on your income and other factors such as participation in an employer sponsored retirement plan, the re-characterized contribution may be deductible or may be considered a non deductible contribution for the tax year in question.

  5. QUESTION:
    IRA contribution limits for my income, there is no deduction allowed. Any advantage?
    Dedeuction is phased out above 65K annual income. Is there still a reason to open an IRA?

    • ANSWER:
      If you participate in a retirement plan at work, you are correct that there is no deduction for a traditional IRA. However, if you make a contribution to a nondeductible traditional IRA in for 2009, and this is the only IRA you own, you can convert it to a Roth IRA in 2010 and pay tax only on the earnings of the conversion. There is no income limit for this conversion in 2010.

      If your income is under 5,000 you could open a Roth IRA in 2009 instead of a nondeductible traditional IRA.

  6. QUESTION:
    Urgent Question: Roth IRA: Do employer 401k contributions count for income limits?
    If I add up my income + my employer’s 401k contributions I may exceed the Roth IRA income cap for 2008.

    When calculating the income cap for Roth IRA contributions, do you include the employer 401k contributions? Or do I just go by my income and not count the employer 401k contributions?

    Thanks,
    Daniel

    • ANSWER:
      Your 401k contributions (both your contributions from your pay as well as your employer’s contribution) are not included in your income for purposes of determining your eligibility for contribution to a Roth IRA.

      For 2008, your modified adjusted gross income cannot exceed 1,000 (9,000 if married filing jointly) in order to make a maximum contribution to your Roth IRA.

  7. QUESTION:
    Should I convert my nondeductible IRA to a Roth when income limits are gone in 2010?
    I’ve always made too much to contribute to a ROTH, so I max out my 401(k) but only marginally put money in my nondeductible IRA. Should I max out the IRA this year so that I can convert it to a ROTH next year, knowing I have to pay taxes on the conversion?

    • ANSWER:

  8. QUESTION:
    What do you do when you make Roth IRA contributions for a year in which your annual income exceeds the limits?
    Let’s say a couple made Roth IRA contributions for 2005 in Feb 2005. In 2006, they realized that their 2005 income was much higher than they originally expected and exceeded the 0K limit for couples. What are the options available now to undo it?

    • ANSWER:
      You better talk to a tax person. If you’ve filed already, and took the deduction, then you’ll have to amend. But if you went to file and realized your mistake, they can help you back out your money.

  9. QUESTION:
    Roth IRA income limit exceeded?
    I own a Roth IRA that has been climbing in value. However, my income level now currently exceeds the limit. I have stopped contributing to my Roth IRA. Is it ok to continue keeping my Roth IRA as is with its current investments?

    • ANSWER:
      The income limit does not affect your existing IRA balance – only your ability to make further contributions.

  10. QUESTION:
    Is there an income limit on making a contribution to a traditional IRA?
    I know there are income limits on contributing to *Roth* IRA. I also know there are income limits on *writing off* a contribution to a Traditional IRA. I’m not asking either. I’m asking are there income limits on making a contribution to a Traditional IRA?

    • ANSWER:
      The only income limit is at the bottom end, your earned income. You can contribute up to ,000 per year (,000 if over 50) as long as you have at least that amount in earned income. Depending upon your income and whether or not you are covered by an employer sponsored retirement plan you may or may not be able to claim a deduction for contributions to a traditional IRA but there is no upper income limit on making contributions.

  11. QUESTION:
    What are the income limits for 2007 that an IRA contribution can’t be deductible?

    • ANSWER:

  12. QUESTION:
    Is max contribution to Roth IRA limited by earned income?
    I have K total wage in 2007, but K going to pension plan (most other income are passive, so I can still eat!) Only 00 shows on box 1 of W2, and K on box 3, Social Security wage. Is my maximum contribution to Roth IRA limited to only 00, or can I still contribute 00 for both myself and my spouse?

    • ANSWER:
      No, you are limited by the amount of earned income that you have on your w2, even if you have more money saved up somewhere else. https://www7.oftnet.com/IRAEligibilityCalc/learnAbout.jsp

  13. QUESTION:
    When does Roth IRA contribution income limit end?
    I heard that soon anyone can convert their IRA to Roth IRA without an income limit. Is this true?

    If so, I am 51 years old and have 0,00 in SEP IRA and ,000 in non-deductible IRA.

    Should I convert all to Roth IRA? Or can you do such a thing?
    Should be0,000

    • ANSWER:
      I, respectfully, disagree with my fellow quite-competent contributor, Judy, Although, this decision should be made (and it need not be all or none) by you and your personal advisor(s), based on your entire financial situation. And, do you have the resources to pay the taxes from another source?

      Yes, the income cap for conversions will be lifted in 2010, and I believe you’ll be able to pay the tax over a two-year period. Required minimum distributions won’t apply at your age 70 1/2 and qualified withdrawals from your Roth will be forever tax free to you AND your beneficiaries.

      If it makes sense, you could always do half.

      PS – I welcome a contact from Judy to find out why she dislikes ROTH IRAs for taxpayers over 35.

      Disclaimer. The information in this response is for general purposes only, and shall not be construed as specific tax, legal, or investment advice for any individual. The questioner is urged to contact their own professional advisors before implementing any tax or investment strategy.

  14. QUESTION:
    Why does IRA have income and contribution limit?
    isn’t it best for everyone’s return value if IRA have as big fund as it can get for investment?

    anyone care to explain why these limits should exist?

    • ANSWER:
      If they didn’t, why wouldn’t very rich people simply put every cent of their income in one of these?? Thereby deferring taxes 20, 30, 40 yrs.

  15. QUESTION:
    If I hold a limited partnership in my IRA and I receive a K1 form must I report that income?
    It is my understanding that an ordinary IRA is a zero-sum gain… meaning that I pay no taxes on the income until I take a distribution form that IRA. Is the limited partnership income an exception to that? If not, should I simply ignore the K1 sent to me?

    • ANSWER:
      If it’s an IRA and the k-1 shows the account number (as opposed to your SSN), you simply put the k-1 for the PTP in your files. You will not pay any tax now, but later when you take the money out of the IRS and get a 1099-R.

      This seems to a new thing this year–I’ve had a bunch of these this week from people who swear they’ve had the investment in the past and didn’t get a k-1.

  16. QUESTION:
    Can I convert a non deductible IRA that has after tax 401K funds into a Roth in 2010 when income limits expire?

    • ANSWER:
      Dear Bobby: Great question, not many people have thought that far ahead. Why not? Look at IRS Pub 17 page 124 and it makes clear the procedure to follow when you convert a nondeductible IRA to a Roth. Obviously the 0,000 figure is a hurdle now for you and in 2010 that hurdle will be removed. Make sure to retain all documentation related to the origin of the IRA and the tax paid status on the funds. Remember you can keep that Roth going even after you reach age 70 1/2.

      This advice was prepared based on our understanding of the tax law in effect at the time it was written as it applies to the facts that you provide. Click on my profile to read more.
      Errol Quinn Enrolled Agent Master Tax Advisor

  17. QUESTION:
    with a traditional IRA and earned income below federally determined limits, the annual contributions:?
    A) are taxed, but the interest in the fund accumulates tax free
    B) reduce your taxes, but the interest income on the IRA is taxed in the year that it is earned
    C) reduce your taxable income. the funds in the IRA and the return on the IRA are not taxed until the funds are disbursed in your retirement years.
    D) are not taxed once when they are placed in the IRA and again when they are disbursed from the IRA

    • ANSWER:
      C. that’s how a traditional IRA works.

      A is a description of a Roth IRA.

      Edit for Big Woof – There is a limit to the amount of money you can make in a year and still contribue to a traditional IRA. I don’t know the exact number for this year.

  18. QUESTION:
    Is there any income limits with a roth 401k IRA?

    • ANSWER:
      Be careful – no such thing as a “Roth 401k IRA”. A Roth 401k has no income limit. A Roth IRA is currently limited to 00 contribution per year for those under 50 and imposes an income limit of 0,000 if single / 0,000 if married.

  19. QUESTION:
    Why is there an upper income limit for contributing to a Roth IRA?
    People over a certain income are not allowed to make any contributions to a Roth IRA. Why? Wouldn’t people with high income rather pay the taxes later anyway (as they would do with a traditional IRA)? In other words, doesn’t this rule just prohibit people from doing something they’d already rather not do?
    Mrs. F: in addition to the upper income limit, there’s also a yearly contribution limit (00 this year). But Roth IRAs are still very, very, worth it! You can always put more money in next year, and the year after that, etc. Contribute the maximum, or as much as you can, every year; you’ll be glad later.

    • ANSWER:
      The limits are for AGI over 0,000 if married (MFJ) and 0,000 for single folks. I would assume that the idea of having a limit is to give tax breaks to lower income folks and continue to tax the “rich”. All of this a political decision by Congress not the IRS.

  20. QUESTION:
    what is the income limit for a roth ira for a married filing joint?
    Is the 160k limit for gross income or for AGI?

    • ANSWER:
      The income limit for a full contribution is 0,000. If you make between 0K to 0K then you can only make partial contributions. Over 0K then you should either look into a traditional IRA or a non-qualified account.

      The income is calculated after you factor in your taxable capital gains & dividends, add both of your salaries, and deduct your deductions. (AGI)

      If you are very close, sometimes a charitble deduction can get you there.

  21. QUESTION:
    Exceeded ROTH IRA limits and filed taxes already. Help!?
    I was confused about the whole IRA excess and claiming it on taxes. I went over the income limits of my Roth IRA, and filed taxes already.

    1. What do I do about the excess and my tax return?

    2. Does the excess apply to my entire year’s income, or only at the point where my income exceeded (example: I received a severence in Nov 07, thats’w when my income exceeded the limit)
    Also, do i need to file an amended return – how do I go about doing that?
    my institution sent me this form to fill out, just wondering if it sounds right.

    IRA Distribution Request Form

    • ANSWER:
      You call your plan administrator and ask for the money and earnings back.
      You file an amended return and declare the income. If it’s past 4/15, you may be charged penalties and definitely interest.

      No, if you exceeded the income limits, you exceeded the income limits. The 1040 looks at the entire year, not month by month, so even if you put the money in back in January and expected to make less than 0K, tough.

  22. QUESTION:
    If I open a Roth IRA now but my income jumps next year will I have to roll the acct into a regular IRA?
    I want to open a Roth IRA and my 2006 income is within the limit, but will likely exceed the limit for 2007. Will I be required to close the Roth IRA all together once I exceed the income limits, or can my money continue to grow in the Roth account even though I’m wont be eligible to make future contributions?

    • ANSWER:
      The money stays in your IRA until you withdraw it.Whether you add to it or not. I use Vanguard for mine – great returns and very low fees.
      Go to their site ti find out more about all the various plans.

  23. QUESTION:
    Do I have to withdraw money from my roth IRA if I made more than expected and exceded the income limit?
    I usually contribute the max amount each year to a roth ira, and I did last Jan for 2007. But after doing my taxes I found out I made slightly more than I am use to making and I actually exceded the income level for contribution. Do I have to take out my investment now that I have made too much money to contribute anything?

    • ANSWER:
      You might want to re-characterize your ROTH and convert it into a traditional IRA account and pay taxes on any income earned while the money is in the ROTH account. This happened to me last year and my mutual fund advisor (Vanguard) walked me through those steps to correct the over-contribution. It is rather straightforward but needs to be done ASAP to avoid further tax penalty. Please consult your IRA custodian for exact information and good luck!

  24. QUESTION:
    Should I still contribute to an IRA if my income exceeds the limit needed to receive any tax benefits?
    My wife and I have an adjusted gross income that exceeds the maximum allowed to be eligible for an IRA. I have been contributing to our IRAs for the past few years, but do not know whether I should continue contributing since it would not be tax-deductible. Is it better simply to invest the money in taxable accounts?

    • ANSWER:
      In Traditional IRAs, you can always contribute no matter what your income is. In Roth IRAs, you have to below a certain AGI limit in order to contribute into it. (In 2010, anyone can open a Roth IRA, no matter what their AGI is).

      I don’t know what kind of IRA you have, but it sounds like you have a Traditional IRA since you mention something about tax-deductions. You should continue putting money into a Traditional IRA because your account grows tax-deferred. While you can’t make tax-deductions, your non-deductible contributions can be withdrawn tax-free. It makes no sense to have investments outside of a retirement account and pay taxes on it.

  25. QUESTION:
    About the income limit for Roth IRA contributions being impacted by TSP contributions…?
    Okay. I’m a wee bit confused about this. I just need a little clarity though.

    Lets say, hypothetically, I have a TSP (Thrift Savings Plan) account in the military and a Roth IRA account. I’ve been maxing them both out since I opened each of them. I can’t remember what the income limit is exactly for the Roth IRA contributions eligibility but for the question’s sake lets say it’s right at 0,000. If I were just promoted and my pay from the military is now 1,000 would the contributions to my TSP that are taken out automatically from my pay without being taxed bring my AGI (adjusted gross income) down? If this is the case, would an AGI of lower than 0,000 make me eligible to continue contributing to Roth IRA or am I still basically non-eligible to contribute to the Roth IRA now that my base pay is more than the Roth IRA contribution limit?

    • ANSWER:
      Your TSP reduces your taxable income, so yes, if you contribute more to it, your ROTH contribution is still legit.

      Helen, EA in PA

  26. QUESTION:
    Question regarding the conversion process that removes the income limit for ROTH IRA’s in 2010.?
    I am not eligible for a ROTH IRA, but I have read of the provision that allows the converting of a non-deductible IRA to a ROTH IRA in 2010. The question is this: once I convert the funds in 2010 to a ROTH IRA, can I contribute to the ROTH account going forward or will I still not be able to since I do not meet the eligibility requirements? If I can only save for 2 years and then convert, but not able to put in more money, I do not think it would be worth it to convert. Does anyone know?

    • ANSWER:
      i would not make any financial moves on what is currently scheduled to happen in 2010. there could be many changes in congress (and president change) before then. that means current law could change many times before 2010.

      keep saving and investing in taxable and non-taxable accounts but wait to see what happens with the Roth etc in 2009 and early 2010 before making any big moves. good luck.

  27. QUESTION:
    One spouse working full time, the other has no documented income. What is the limit on IRA contributions?
    What would be the maximum allowable IRA contribution $ during the year for tax purposes for the non working spouse.

    • ANSWER:
      km is right on and gets a tic!!!

  28. QUESTION:
    I filed taxes, and forgot I exceeded the income limit for my ROTH IRA. Help!?
    1. my institution told me to fill out an IRA DISTRIBUTION REQUEST form. does this sound right in order to take the money out?

    2. Do i need to ammend my return, if so how? or can I just send the form that withdraws the money I put in ?

    • ANSWER:
      You have until April 15th to roll back the contributions to the Roth, plus any earnings on the improper contributions. You will pay tax on the earnings but not the rolled back contributions.

  29. QUESTION:
    what is the maximum income limit to tax deduct a traditional IRA opened in a bank?

    • ANSWER:
      Excellent question!

      First of all, it sounds like you know that you can contribute to your Traditional IRA regardless if you deduct it or not. You can contribute whichever is higher, your earned income or 00 (00 if 50 or older).

      As fas as deducting your contribution, look at your W-2. If box 13 “Retirement Plan” is not checked on any of your W-2s (or any of your spouse’s W-2s), then you can deduct your contribution regardless how much income you have.

      If your spouse has the “RP” box checked but you don’t, then you can only deduct your contribution if your combined AGI (bottom line of 1040) is 0,000 or less. The deduction fades away from 0,000 to 0,000. What does that mean? If your AGI is less than 0,000 you can deduct the entire amount. If it is 5,000, you can only deduct the first 00 (00 if 50 or older).

      If YOU have the “RP” box checked, the 0,000 becomes ,000 if you are married and ,000 if you are single. So, for example, if you are single and have an AGI over ,000, you can not deduct any of your IRA contribution. If your AGI is ,000, you can only deduct the first 00 (00 if 50 or older). The ,000 becomes ,000 and ,000 becomes ,000 if married.

      If you do contribute non-deductable funds into your Traditional IRA, be sure to fill out form 8606. This will allow you to avoid the tax on the non-deductible portion when you eventually pull it out. If you can, it is ALWAYS better to put money into a Roth IRA instead of putting non-deductible money to a Traditional IRA.

  30. QUESTION:
    Tax question about traditional IRA & unearned income?
    I have unearned income in the form of a pension. Everything I have read says that this income does not count as qualifying income for contributing to a traditional IRA and being able to deduct the contribution. When I use Turbo Tax to do my taxes, it says that my income exceeds the limit to be allowed to contribute to the IRA and take a deduction, but if I subtract my pension income, then it doesn’t exceed the limit. Am I missing something?

    • ANSWER:
      You are correct. Pension income is not EARNED income and cannot be used to make an IRA contribution. You must have earned income (wages/salary/tips/self employment income) to do so. However, the MAXIMUM income limit for IRAs is based on your AGI – which does include unearned income. See IRS Publication 590.

  31. QUESTION:
    What if my total income exceeds limit for Roth IRA during the year?
    I make regular contribution to my Roth IRA account. My income is below the gross income limit of 0,000 for married couple. But my wife is thinking about start working, so there’s a possibility that our gross income will exceed 0,000 this year.

    My question is: will I be penalized for the Roth IRA contribution I have already made if our combined income eventually exceeds the limit?

    Thanks in advance for your answer.

    • ANSWER:
      I had this same question not too long ago.

      If you overcontribute you are allowed to withdraw the excess contributions from the account with no penalty, so long as you do it before the april tax deadline the following year. I also believe there is a formula for determining how much of your gains are attributable to the overcontribution:

      if
      B= how much was in your account before the contribution
      X= overcontribution amount
      G= gain since the overcontribution amount was contributed

      You would have to withdraw:
      X/(X+B)*G in addition to the amount you overcontributed, and would pay income tax on this amount.

      So if you overpay in 2007, you have until April 2008 to pull out the excess. It may be a good idea to start doing your ’08 taxes early so that you know sooner how much, if any, you’ll need to withdraw from your IRA account.

  32. QUESTION:
    Can you contribute to the maximum on both Roth IRA and Roth 401k if your income is under the limit?
    I know that I can contribute to both Roth IRA and regular 401k to the maximum if my income is under the limit. However, as more and more companies offer Roth 401K, I am not sure if I can contribute to the maximum in Roth IRA when I am already contributing to the yearly maximum in my Roth 401K.

    • ANSWER:
      Absolutely you can max out both. In fact, you should if you can.

      However, I wouldn’t do it quite this way unless you’re in a pretty low tax bracket. If you’re in the 25% bracket or higher, you might consider maxing the Roth IRA, but going with the traditional 401k instead.

      This is something called “tax diversification”. It protects against changes in the tax law in the future. As an extreme example, what if income tax gets completely replaced by sales tax? The tax free withdrawals from your Roth IRA would be pointless, but at least your regular 401k would have enjoyed an upfront tax benefit.

      Like I said, that’s an extreme example, and tax diversification is a long discussion for another day. Whichever your pick, if you max out both, you’re way ahead of your peers. Go for it!

  33. QUESTION:
    What is the income limit for married filing joint to be able to deduct a traditional IRA?

    • ANSWER:
      check the latest rule at www.irs.gov

  34. QUESTION:
    Question regarding 401K and Roth IRA limits?
    I am over 50. I file married filing jointly with a total combined income of under 7,000. I contribute 10% of my income to a 401K plan at my work. Can I still contribute the full 00 per year to a Roth IRA, or are there restrictions on how much I can contribute to a Roth IRA because I also contribute to a 401K?

    • ANSWER:
      You can contribute the maximum to both.
      The 401K is not yet taxed, and the Roth is, so they are different entities.

  35. QUESTION:
    What is the limit income for the tax year 2005 to be able to fund a roth ira?

    • ANSWER:
      If you file your taxes either Single or Head of Household, you can earn up to ,000 and still make a full contribution (,000 in 2005 and 2006. If you are 50 or over, don’t forget the catch up, 0 for 2005 and ,000 for 2006) If you make between ,001 and 9,999 you will be able to make a partial contribution. Check the IRS website for the formula (www.irs.gov)

      If you file jointly you can make the full deduction if you make 0,000 or less with the phase out falling to zero at 9,999.

  36. QUESTION:
    Is it possible to transfer money from a Roth IRA to a traditional IRA without incurring a penalty?
    I have exceeded the income limits for a Roth IRA and would like to transfer the excess to my traditional IRA account. Anyone know if this is possible and if so, how I should go about doing this?

    • ANSWER:
      Yes. You do what’s called a “recharacterization”. Notify the broker or bank that has your IRA that you want to recharacterize it from a Roth to a Traditional. There will probably be a form to fill out and possibly a fee (maybe something like ). They will calculate the earnings on your contribution that you are recharacterizing and transfer the contribution plus the earnings to the Traditional IRA.

      As far as IRS penalties, my understanding is that if you do the recharacterization before the due date for the tax return for the year the contribution was made for, there are no penalties. So if this is a 2007 contribution, you’re fine. If you don’t do it by then (e.g. if this was a 2006 contribution), there are IRS penalties (6% per year, I think). There’s some comments about it being the due date (including extensions) so that might mean you actually have until October because of the automatic 6-month extension that is available, but I’m not sure about that.

      See Publication 590 (http://www.irs.gov/pub/irs-pdf/p590.pdf) page 29 and 48.

  37. QUESTION:
    Opened traditional IRA in 2007. Income exceeds limit for deduction. Can roll IRA to 457 b retirement plan?

    • ANSWER:

  38. QUESTION:
    Do Roth IRA earnings count as income?
    Suppose the Roth IRA contribution salary limit holds at 0,000 or near it for a while. Eventually, the worth of my portfolio my grow to one million. In a bull market, I could easily make 0,000 for that year. Would those numbers count against my contribution limits?

    I know I really beat around the bush here, but I guess all I want to know is if IRA earnings count as income. Hope you enjoyed reading my scenario anyway, and I would appreciate any comments on that as well. Thanks!

    • ANSWER:
      No, the earnings from any tax sheltered account don’t count as income. That specifically includes Roth IRA accounts, so earnings in a Roth IRA won’t increase your adjusted gross income for the purpose of determining your contribution limits.

      Withdrawals are a different story. Whether withdrawals count as income depends on the type of tax sheltered account. Withdrawals from traditional IRAs and 401ks generally count as income in the year you make the withdrawal, but withdrawals from Roth IRAs and Roth 401ks aren’t counted as income.

  39. QUESTION:
    as an american living & working in denmark, can I open an IRA in the states?
    My income is derived in Denmark and I pay Danish taxes.
    Does that mean that US income limits to IRAs don’t apply?

    • ANSWER:
      If your income is excluded from tax by means of the foreign earned income exclusion, you are not allowed to contribute to an IRA.

      If you earn more than the exclusion amount, you will be able to contribute to an IRA.

      The amount of the foreign earned income exclusion for 2007 is ,700.

  40. QUESTION:
    Maximum income on Roth IRA?
    Looking to open a Roth IRA and noticed there are maximum income restrictions, as in, if you make X amount you may not be eligible to contribute.

    I am not reaching the max income limits yet, but as my career progresses I will be making more money. If I reach that max income restriction and can no longer contribute before retirement age, what happens to all that money I’ve collected since then?

    Seems like the account will be frozen simply because I make too much to contribute further. Is this the case?

    • ANSWER:
      Your account will be safe. It is just that you will not be able to contribute more money to it. The money in it continues to earn money tax free. Frankly, do not worry about that bridge until it comes time to cross it. Who knows what congress might do in the mean time?

  41. QUESTION:
    Assuming I am under the income limit for Roth IRA, can I contribute to both a Roth 401 (k) and a Roth IRA?

    • ANSWER:
      You limit per year is 000 in 401K, regardless of roth or regular. That is the limit before employer match.

      You can also put K in an IRA, regardless of roth or traditional.

      Pick one 401K option, and one IRA option.
      I think you can do a mix too.

      But also, there is no benefit to investing in traditional IRA’s if you have a certain income ( I think 50K) and have access to 401K. In those times, you should always pick roth IRA.

      This is my understanding. Currently I invest 15K in a traditional 401K and 4K in a Roth.

  42. QUESTION:
    What happens if I contribute to a Roth IRA and my income exceeds the limit for the year.?

    • ANSWER:
      Talk to the investment rep and get some advise. You may want to recharacterize the contributions.

  43. QUESTION:
    Is there a minimum taxable income limit for ROTH IRA?
    I am a foreigner with J1 who had a taxable income of ,000 for 2007 (I just found out it is taxable since I changed to J1 from F1 student visa, which make me ineligible for the tax treaty). My wife, a H1 visa holder, had a taxable income of 00 in 2007 (she had a non-taxable fellowship when she was a F1 visa holder in most time of 2007). My question here is: Can each of us contributes 00 separately for 2007 ROTH IRAs ?

    • ANSWER:
      Yes, you can — you have until April 15 to fund either Traditional IRA (which is deductible) or the Roth IRA (which is not).

      In her case, you are using the spousal IRA provisions to fund hers beyond her 2K in earnings.

  44. QUESTION:
    Opening a ROTH IRA account with Vanguard?
    Hello I’ve decided to open up a ROTH IRA account with Vanguard within a couple months. The guildline states that:
    ———
    Who can contribute and how much

    The guidelines for investing in a Roth IRA include:

    * Income limit. Your earned income from working must at least equal your IRA contributions. If you’re married and filing a joint income tax return, you may also contribute to an IRA for a nonworking spouse.* Income limits affect whether you can make a full or partial contribution.
    * Minimum contribution. The minimum investment to open a fund within your Roth IRA is ,000.
    ——-

    Let say I have the 00 dollars needed to open the account. But on the other hand, I was only able to make 1500 dollars this year with Earned Income as my first job. Would I be able to use the 00 to open the account and contribute the 00, even though I only have an Earned Income of 00?
    Also would the 00 that I had on the side be included in my contributing limit of 00 a fiscal year ROTH IRA just because I opened the account? Or would I be able to contribute another 00 within this fiscal year (assuming that I would be able to make that much before tax deadlines)?

    The website is located below:

    https://flagship.vanguard.com/VGApp/hnw/accounttypes/retirement/ATSRothIRAWhoContributeContent.jsp

    Thanks a bunch

    • ANSWER:
      You can use your ,000 to open an account with Vanguard – you just can’t open a Roth IRA account with the full K. It would have to be a regular account.

      You can then transfer money from your K regular account to a Roth IRA account, but only the ,500 since that’s all you earned this year. Vanguard does have a STAR Fund that has a minimum investment of ,000 to open it. All the other funds have a K minimum.

      I have Roth IRA accounts with Vanguard and am very happy with them. Don’t be afraid to call their 800 number for help. They are very patient and helpful.

  45. QUESTION:
    How can I lower my income for Roth IRA qualification by increasing my 401k contribution?
    I participate in a 401k up to the point of employer match, and each year I’ve been making out the roth contribution. My income for 2007 will exceed the uppoer limit to qualify me for contributing to a roth. Can I meet the restricions by increasing my pre-tax 401k, even though it will be unmatched?

    • ANSWER:
      Good Question. In 2006 you can contribute 000 to your 401k regardless on employer match. If your over 50 years old you can contribute an addional 00. All those contributions will lower your marginal tax rate. Therefore you could reduce your income in regard to ROTH IRA limits. You should check with your CPA first. If you are over the limit for Roth contribution you will get hit with penalties from the IRS. Another option is the ROTH 401K. Ask your employer if that is an option. You can put in 000 per year with no income limit. You can email me on this subject if you have more questions.

  46. QUESTION:
    What is the difference between non-deductible IRA contributions and contributions to a regular taxable account?
    If you make contributions to a traditional IRA which are not tax-deductible for whatever reason, how is this any different from contributing post-tax dollars to a regular taxable account? I thought the only difference was that IRA contributions were tax-deductible. In the case of IRA contributions which are not tax-deductible (due to income limits, e.g.), what is the advantage of an IRA?

    • ANSWER:
      any earnings in the IRA are tax deferred (until withdrawal). This includes the earnings on the non-deductible contributions. The accounting gets messy though because the amount you take out during requirement is only taxable to the extent that you never paid tax on it before. In other words when you withdraw the non-deductible contribution is comes out of the IRA tax free because you already paid the tax on it. The amounts you contributed pre tax and the earnings get taxed upon withdrawal.

  47. QUESTION:
    What are the limits if I have a Traditional and Roth IRA, and what are the penalties for going over the limit?
    I contributed the maximum amount to my Roth IRA in January. I recently got a raise and it looks like I may fall into or exceed the income limits for contributing to a Roth IRA. What are the penalties, and is there anything I can do to fix it? Also, is the limit of 00 for contributions for both IRAs, or can I have a Traditional and Roth IRA and contribute 00 to each in the same year?
    I forgot to add, the contribution was for 2009, I always max out my IRA at the beginning of the year.

    • ANSWER:
      If your contribution in January was for this tax year then you may not be able to keep the account as a Roth. If it was for last year I think you’ll be fine as your income last year didn’t disqualify you. The 00 limit is for both combined. So you could put 00 in each, or as you did 00 in one or the other, or any other combination that added up to no more than 00. I’d talk to the institution you made the deposit with and see what they recommend. If you are required to liquidate the Roth by law then you may not have to pay the penalty. Especially if you put the same amount into a traditional IRA with the same company.

  48. QUESTION:
    Can i still get the tax benifit for buying traditional IRA ?
    My family income exceed the limit for buying Roth IRA. Both of us already bought the max of 401k.

    Is there any income limit for buying traditional IRA ? IS THERE ANY TAX BENEFIT FOR BUYING IT ? And how much i could buy in maxi um? thanks for the help.

    • ANSWER:

  49. QUESTION:
    Is the money taken out of an IRA counted as income at the end of the year?
    If you are 59&1/2 is the money considered income. I know that there are no penalties or intrest on the withdrawl, but what about taxes at the end of the year. Is there a limit that can be taken out or can you take out as much as you need.

    • ANSWER:
      Allow me to be the first to answer, “not always”. What everyone else is forgetting is that sometime, people fund their IRAs with post-tax money a.k.a. non-deductible contributions.

      Traditional IRA withdrawals – the amount of pre-tax contributions plus gains are taxed just like any ordinary income (think of them as interest because, unlike compensatory income ‘W-2′, IRA withdrawals are not taxed for social security or medicare). The post-tax contributions come out tax free. As stated by earlier responders, you may not actually owe any tax if the taxable amount withdrawn plus all your other taxable income is below your standard/itemized deduction plus exemptions. Keep in mind, social security earnings are not taxed unless you have other income like IRA withdrawals…so your IRA withdrawals are not only taxable, but can also make your social security taxable.

      All amounts withdrawn from a Roth IRA are tax free if withdrawn in the year you reach 59 1/2 or later.

      As far as limits, there no maximum nor minimum limit for a Roth. In fact, you can leave the money in there until you die and your heirs can inherit it without having to claim it as income. For the Traditional IRA, there is no maximum, but there is a minimum starting in the year you reach 70 1/2. When you heirs inherit this pot, they will have to treat it is as income.

      Hope this helps :)

  50. QUESTION:
    If I maxed my Roth IRA but got a bonus later that yr that put me over the income limit, what happens?

    • ANSWER:
      You need to withdraw the excess contributions to avoid paying additional tax. If you make the withdrawal before the due date of your tax return, it will be considered as if the contribution was never made. You must also withdraw any earnings on the excess contributions. So you should do it quickly while determining the earnings is easier.

      Moving the excess to a traditional IRA won’t help. Your total contribution limit doesn’t increase because you have two IRAs. You would have to subtract the traditional IRA contribution from your ROTH contribution limit.