Master your Roth IRA contribution limits with this cheat sheet.
In This Article:
- Tax Incentives
- Roth IRA Contribution Limits in 2019
- IRA Excess Contribution Reporting
- Roth IRA Contribution Income Limits
- Roth IRA Age Limits
- Roth IRA Contribution Deadline
Roth IRA Contribution | Your Ultimate Cheat Sheet Guide
Making a Roth IRA contribution is an option if you are likely to pay higher taxes upon retirement. With this individual retirement account, you can grow both your money and its earnings tax-free. Still, there are certain eligibility requirements and rules that can affect your contributions. This cheat sheet will then serve as your guide.
IRA offers tax benefits, but their impact can vary. With a Traditional IRA account, you can use your contribution to reduce your taxable income in a tax year. You can then create tax-deferred earnings. It means the IRS will collect the taxes when you make your withdrawals.
IRS Roth IRA is different. Since you fund it with post-tax income, you don’t need to pay taxes from your contributions and their earnings.
Under Traditional IRAs, the IRS treats your distributions as regular income. By then, you need to pay its corresponding income tax. You also need to meet the required minimum distributions or withdrawals when you reach 70.5 years old.
With Roth IRA contributions, you can withdraw them without paying taxes or penalties as long as you follow certain requirements. One of these is the 5-year rule. Your account should have been around for at least 5 years before you make a withdrawal. Moreover, you are at least 59.5 years old.
There are cases, though, when you can make a distribution early or avoid paying the penalty or taxes on your investment earnings.
Roth IRA Contribution Limits in 2019
The limits for Roth IRA contribution for the tax year 2019 are higher than the Roth IRA contribution limits in 2018.
It is $6,000 for the entire tax year with a catch-up contribution of $1,000 if you’re already at least 50 years old. It means if you’re 50.5 years old, your total limit is actually $7,000.
IRA Excess Contribution Reporting
If you have both Traditional and Roth IRAs, the total contribution for the two should not go beyond $6,000 (or $7,000 if you’re 50 years old and above). Otherwise, you are making excess contributions.
There are different reasons why you end up contributing more than you should. One of these is reaching your income limit (which you will know later). Fortunately, you also have different ways on how to report excess Roth IRA contributions:
- Move the contribution to the next tax year, but this may entail withdrawing the excess Roth IRA contribution and then adding it back.
- Withdraw the excess funds when you already filed your tax return. You actually have 6 months since the original due date of the return to get the money. After the withdrawal, you have to file an amended federal and state tax return.
- Withdraw the extra Roth IRA contribution up to the extended deadline of the filing of the tax return. This works if you already requested for such an extension. Since this is simply removing your excess money, it doesn’t count as a distribution. You, therefore, don’t need to worry about taxes or penalties. If the money has already earned investment income, though, you also need to withdraw it from your IRA.
- Pay an excise tax of 6% on the exceeding amount for each year it remains in your Roth IRA account. This can be a significant problem if the money grows exponentially, and you don’t do anything for years.
Roth IRA Contribution Income Limits
One of the major limitations of Roth IRA is income. There are income brackets that will make you ineligible for this account, although you can explore a different Roth IRA conversion.
The Roth IRA income limits in 2019 are different from the previous year. There are adjustments between $2,000 and $3,000:
- If you’re a single filer, you can no longer contribute to Roth IRA if your modified adjusted gross income (MAGI) is already $137,000. The phase-out, meanwhile, begins at $122,000.
- If you’re married filing jointly or a widow(er), the Roth IRA income limit is below $193,000. After this amount, your contribution phases out. When the MAGI reaches $203,000, you are no longer eligible.
Roth IRA Age Limits
On the upside, a Roth account doesn’t have any age limit when it comes to contributions. Unlike a Traditional IRA account, it doesn’t force you to take a minimum distribution when you’re 70.5 years old. In fact, you can continue to contribute and grow your money. This makes it an ideal retirement plan if you have children. You can pass on the account to your heirs.
Children can also make a Roth IRA contribution as long as they have an earned income. Parents or brokerage accounts can serve as custodians until the kids are 18 years old. This is a good way for them to build college funds or down payment for their first home later.
Roth IRA Contribution Deadline
With Roth IRA, you can contribute in lump sum or in small amounts throughout several months. Either way, the deadline usually falls on the tax-filing deadline, which is usually April 15. A contribution before and during this date belongs to the prior year. The ones after it are already for the following tax year.
In reality, you have 15 months to make a Roth IRA contribution up to the maximum limit. For example, for the tax year 2019, you should have begun January 2019. Then you have until April 15, 2020, to contribute.
Don’t forget to download, save, or share this handy infographic for reference:
Learn more about Roth IRA contribution cheat sheet in this video:
The different Roth IRA contribution and withdrawal rules can be confusing. They can also be overwhelming, which means you are prone to mistakes. This is what this cheat sheet is for, though. Hopefully, it covers the basic information you need to plan your IRA investments well. Keep in mind, too, you can always get help from the experts, such as Inside Your IRA, when it comes to retirement planning.
Do you maximize your Roth IRA contribution? You may share why or why not in the comments section below.
Editor’s Note: This post was originally published on December 15, 2017, and has been updated for quality and relevancy.