Roth IRA Rules
Here are the 2012 Roth IRA Rules
Note: The article below refers to the 2012 tax year. Assuming your IRA was opened by Dec. 31, 2012, you have until the tax filing deadline–April 15, 2013–to make a 2012 contribution. The income/contribution limits have increased for the 2013 tax year. Click here for the details.
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. You can skip directly to a list of links to rules for existing Roth accounts by clicking here.
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 you 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.
|2012 Roth IRA Income and Contribution Limits|
|Filing Status||Income Limit*||Contibution Limit|
|Married filing jointly||$173,000 or less||$5,000**|
|$173,001 to $183,000||Begin to phase out|
|Greater than $183,000||Ineligible for a Roth IRA|
|Married filing separately||$0||$5,000**|
|$1 to $9,999||Begin to phase out|
|Greater than $10,000||Ineligible for a Roth IRA|
|Single||$110,000 or less||$5,000**|
|$110,001 to $125,000||Begin to phase out|
|Greater than $125,000||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 $6,000.
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 2012, for instance, you can make a contribution any time from January 1, 2012 to April 15, 2013 (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 $5,000).