The Internal Revenue Service announced the new contribution and income limits for Roth IRAs for the 2011 tax year in November. Let’s take a look to see if the changes will have a significant impact on your ability to contribute to a Roth IRA in the upcoming year.
Past Contribution and Income Limits
Before we look at the changes for 2011 let’s make sure you’ve made the right moves for your Roth IRA in 2010. In 2010 the maximum contribution for Roth IRAs is $5,000 for all individuals. For those age 50 or older a $1,000 catch-up contribution is allowed bring the total contribution up to a possible $6,000. You have until April 15, 2011 (or whenever you file your taxes) to invest up to the contribution limit in your Roth IRA. (And don’t forget your spouse can also contribute to their Roth since they are individual accounts!) The income limits in 2010 are, as always, based on your tax filing status. If your modified adjusted gross income falls below the listed income limit then you can make a full contribution to a Roth IRA. For 2010:
- If you file a single tax return in 2010 your income limit is $105,000. Your ability to contribute begins to phase out here and completely phases out at $120,000.
- If you file a married filing join tax return in 2010 your income limit is $167,000. Your ability to contribute begins to phase out here and completely phases out at $177,000.
- If you file a married filing separate tax return in 2010 your income limit is $0. Your ability to contribute begins to phase out here and completely phases out at $10,000.
2011 Roth IRA Contribution Limit
For the 2011 tax year Roth IRA contribution limits are unchanged from 2010 levels. All individuals that qualify with earned income can invest up to $5,000 toward retirement in a Roth IRA. Individuals age 50 or older are allowed to invest another $1,000 in catch-up contributions. You may not be surprised that the contribution limit didn’t change, but note that it has changed a lot since the Roth IRA was first introduced. The first limit was $3,000 with $500 allowed in catch-up contributions. The IRS is committed to avoiding the mistake that was made with the alternative minimum tax (AMT). The AMT was never tied to inflation and congress must pass a “band aid” provision every year to exempt middle class taxpayers. Moving forward the IRS plans to connect Roth IRA contributions to inflation. If inflation takes off, expect the contribution limit to increase.
2011 Roth IRA Income Limits
There were minor changes from the 2010 rules in regards to income limits for the Roth IRA. For single filers the income limit is raised $2,000 from $105,000 to $107,000. The phase out limit also increased $2,000 to $122,000. For married filers the income limit also increased $2,000 from $167,000 to $169,000. The phase out limit also increased $2,000 to $179,000. These limits seem to change more often than the contribution limits. That makes sense though as the income tax limits for tax brackets also tend to change fairly regularly. No other significant changes were made to Roth IRAs for 2011. The age limits and tax-free retirement perks are still in place.