By Kaye A. Thomas
Current as of February 6, 2018
Main rules for annual contributions to a Roth IRA.
Most people who work for a living (or have a spouse who works for a living) can contribute to a Roth IRA. There’s still an income limit on regular contributions, though, even though the income limit on conversions has been repealed. Here’s an overview of the rules for regular contributions.
First, the Good News
Before we turn to the restrictions, here are some items that don’t affect your contributions.
- No age limit. There’s no age limit for contributions to Roth IRAs. For regular IRAs, you lose the ability to make contributions in the year you turn age 70½. Not so for Roth IRAs. If you meet the other requirements, you can set up a brand new Roth IRA at age 85 and begin saving for your “retirement.” There’s also no lower age limit. A minor can set up a Roth IRA and contribute to it. (We have a separate article on Roth IRAs for Minors.) But remember, young or old, you need to have compensation income, as explained later.
- No employer plan limit. Coverage under a retirement plan maintained by your employer does not affect your ability to contribute to a Roth IRA. If you meet the requirements described below, you can contribute to a Roth IRA even if you participate in an employer plan such as a 401k. Even if you contribute to a designated Roth account (a Roth account in a 401k or similar plan), your contributions to a Roth IRA are unaffected.
- Conversion doesn’t affect regular contribution. Regular contributions are not affected by Roth IRA conversions. You can make a regular contribution even if you made a conversion in the same year.
- Contribution to conversion Roth IRA. Although there was initially some confusion on this point, it’s been clear for a long time that you can make regular contributions to a conversion Roth IRA.
The Contribution Limit
For 2017 and 2018. the basic limit for regular contributions to a Roth IRA is $5,500 for people under 50 years of age, and $6,500 for those who are 50 or older. (Numbers like this can be found in our Reference Room.) This limit may be reduced for any of the following reasons:
- You or your spouse may not have enough compensation or alimony income to contribute the full amount.
- Your contribution may be reduced or eliminated because your modified adjusted gross income is too large.
- Your limitation is reduced if you’ve made certain other contributions.
Compensation or Alimony Income
For each year you contribute to a Roth IRA, you (or your spouse, if you file jointly) must have compensation or alimony income. If you don’t have compensation or alimony income you can’t contribute, even if you have other types of income. And if your compensation or alimony income is less than the maximum contribution, the amount you can contribute is reduced.
- Compensation income. Compensation income includes amounts you receive from your employer of course, but also includes self-employment income from your own business or from a partnership that generates this type of income. There’s a special rule that treats taxable alimony income as compensation income, just for purposes of determining how much you can contribute to an IRA. That means you can contribute to an IRA if you receive taxable alimony payments, even if you don’t work for a living. (Alimony paid pursuant to settlements or decrees entered into after 2018 will not be taxable to the recipient and therefore will not provide the basis for IRA contributions.) Compensation income does not include investment income, pension income or non-taxable income.
- Spousal Roth IRA. If you file jointly with a spouse who has compensation income as described above, you don’t need compensation income of your own. You can contribute to a Roth IRA based on your spouse’s compensation income.
Modified Adjusted Gross Income
For some people the most important limit on contributions to a Roth IRA is based on modified adjusted gross income (“modified AGI,” defined below). If this number is too large, your contribution limit may be reduced — possibly all the way to zero.
- General rule. The income level where the reduction occurs depends on your filing status. You don’t have to worry about these rules unless your modified AGI is above the following levels for 2018. Inflation-adjusted amounts for other years appear in our Reference Room.
|Married filing jointly||$189,000|
|Married filing separately, living apart for entire year||$120,000|
|Married filing separately, other||$0|
As your modified AGI rises above those amounts, your contribution amount is gradually reduced or “phased out,” and eventually eliminated.
- Modified AGI. Your adjusted gross income is the amount on your tax return before you claim certain deductions, including the standard deduction, any itemized deductions, or the deduction for personal exemptions. Your modified adjusted gross income starts from this number and makes certain changes. You get to subtract any income you report because of converting a traditional IRA to a Roth IRA, but you have to add back your regular IRA deduction (if any) and certain tax-exempt amounts.
- Exceeding the limit. Some people aren’t able to predict their income. You may be wondering what will happen if you contribute to a Roth IRA early in the year and later learn you don’t qualify for that contribution because your modified AGI is larger than you expected. In this situation you can avoid penalties if you take corrective action by the due date (including extensions) of your return for the year of the contribution.
Reduction for Other Contributions
The amount you can contribute to a Roth IRA is reduced for certain other contributions:
- Contributions you make to a traditional IRA (other than rollover contributions).
- Contributions you make to a “501(c)(18) plan.” These are pension plans created before June 25, 1959 that are funded entirely with employee contributions.
Your Roth IRA contribution is not reduced or otherwise affected by any contribution you make to a 401k plan or 403b plan — even if you contribute to a Roth account in one of these plans. (Technically these amounts are contributed by your employer, not by you, even though the contribution reduces your paycheck.)
Q: What if I contribute to a SEP IRA or SIMPLE IRA?
A: Typically these contributions are “elective deferrals,” which don’t reduce your eligibility to contribute to a Roth IRA. Just like the dollars that go into a 401k plan, they’re considered to be contributed by your employer. But you’re also permitted to make a regular “IRA-type” contribution to a SEP IRA. If you make this type of contribution to a SEP IRA, it reduces the amount you can contribute to a Roth IRA.