Roth IRAs are a great when it comes to investment for retirement savings, but the owner needs to be particular about the contributions and plan them in time based on the income limits as making the wrong contribution will lead towards facing penalties. Roth is very popular retirement account becausein this account the owner is able to withdraw money tax-free when retire, and does not required to take minimum distributions from the account when you reach 70 and a half. But the Roth contribution will not be deductible from tax return in the year contributing. Previously there were income restrictions on the contributions but in the year 2010 these restrictions were removed and now, the owners can contribute irrespective of the income. To be able to contribute to the Roth IRA the individual must have earned income to make the contribution. The term earned income is defined as any type of compensation earned for performing some type of service for an employer, or income earned through self-employment. Earned income includes salaries, commission, interest’s etc. But this does not mean that the owner can contribute more if he/she earns more or has higher income.
Maximum Contribution to Roth IRA if the earned income is less than the annual contribution limit is based on the age of the owner and the amount is $5,000 plus a $1,000 catch-up contribution that is a total of $6,000 if the age of the owner is 50 or above. And if the age of the owner is below 50 years then he/she is allowed $5,000 as the Maximum Contribution to Roth IRA.
The ability to contribute also depends on the status of filling the Roth IRA. Basically a Roth can be opened as a single owner or dual ownership with the spouse and the ability to contribute depends on the status of filling for single fillers or taxpayers, if adjusted gross income (AGI) is $122,000 or more, and then can’t contribute, and if the AGI is between $107,000 and $122,000, the $5,000 maximum contribution is phased out.
For married taxpayers filing jointly, no contribution can be made if AGI is $179,000 or more, and the phase-out rules states that if the earning is between $169,000 and $179,000 then the owner can make full contribution. Here even if one of the spouses is non-working still the contributions can be done but the working spouse must have sufficient earned income and this dual ownership can only be maintained if the couple is filling a joint tax return.
For married individuals but filling separately if the owner has earned income of at least $10,000, then he/she is eligible to make the maximum contribution for themselves $5,000.