Roth IRA Rules
2015 Roth IRA Rules - Eligibility, Income, Contribution Limits, and More
Note: The article below refers to the 2015 tax year. You have until the tax filing deadline–April 18, 2016–to make a 2015 contribution. Contribution limits will stay the same for 2016, but income limits increased slightly.
When it comes to a Roth IRA, “rules” is a subjective term. But whether you’re looking for Roth eligibility criteria or what you can and cannot do with an account once you have one, you’ve come to the right place.
First, we’ll tackle the rules for Roth IRA eligibility. See below for additional rules regarding eligibility and rules for investors who already have Roth IRAs.
Are You Eligible?
Two things determine whether you can open a new Roth IRA or continuing to invest in an existing account:
- Your current-year income
- Your tax filing status.
First, you have to have “earned” income; that’s income you make from working, typically in the form of salary, hourly wages, or profits from a small business.
If you have earned income, you then need to make sure you aren’t going to make more than the federal government allows for Roth IRA account holders. The amounts differ depending on your tax status.
What is My MAGI?
The earning limits are also on based something called your modified adjusted gross income (MAGI). MAGI is calculated by taking the adjusted gross income from your tax forms and adding back deductions for things like student loan interest and higher education expenses. A full explanation of MAGI is available here.
Here’s a chart that details the income limits, by tax filing status. It also indicates how much you can contribute each year if you are under those limits.
|2015 Roth IRA Income and Contribution Limits|
|Filing Status||Income Limit*||Contribution Limit|
|Married filing jointly||$183,000 or less||$5,500**|
|$183,001 to $193,000||Begin to phase out|
|Greater than $193,000||Ineligible for a Roth IRA|
|Married filing separately***||$0||$5,500**|
|$1 to $9,999||Begin to phase out|
|Greater than $10,000||Ineligible for a Roth IRA|
|Single||$116,000 or less||$5,500**|
|$116,001 to $131,000||Begin to phase out|
|Greater than $131,000||Ineligible for a Roth IRA|
*Modified Adjust Gross Income per IRS.
**Individuals age 50 and over can contribute up to $1,000 extra per year to "catch up" for a total of $6,500.
***Married (filing separately) can use the limits for single people if they have not lived with their spouse in the past year.
15 Months to Contribute
One quirk in the IRA laws is that you have 15 months to make a contribution for the current tax year. In 2015, for instance, you can make a contribution any time from January 1, 2015 to April 15, 2016 (the tax filing deadline).
More on Earned Income
And one other thing to keep in mind. If your earned income is less than your eligible contribution amount, your maximum contribution amount equals your income. In other words, if you have $3,000 in earned income, the most you can contribute to the Roth is $3,000 (instead of $5,500).
More Rules That Make Roth IRAs Special
Here are a few other eligibility-related features of a Roth IRA:
- You can make contributions at any age.
- You are not required to take a “mandatory distribution” from a Roth (traditional IRA account holders must start withdrawing money at 70 ½).
- A non-working spouse can open a Roth IRA based on the working-spouse’s earnings (and the couple’s tax filing status).
- You can still make your annual contribution if you also convert money from a tax-deductible account (like a traditional IRA) to a Roth in the same year.
- You can contribute to a Roth even if you participate in a retirement plan through your employer.
Rules for Existing Roth Accounts
Now that you know that you’re eligible, here’s are links to some of the most common rules—and frequently asked questions--to consider when managing your account.
- There is a five-year rule for making withdrawals from Roth IRAs. We recommend reading more on this rule before making withdrawals.
- How to make penalty free withdrawals (for things like buying a first home and paying for college).
- Investors can undo a Roth conversion (called a “recharacterization”).