The 2011 tax year saw some significant changes made regarding Roth IRAs. Below is a summary of those changes, along with all the 2011 Roth IRA contribution and income rules.
2011 Roth IRA Income Levels
The 2011 Roth IRA income limits increased $2,000 over the 2010 levels, for both single taxpayers and married taxpayers filing jointly.
In 2011 single filers could fully contribute to a Roth IRA if their modified adjusted gross income (MAGI) fell below $107,000. After that, the allowed contributions started getting phased out, and were eliminated completely for incomes above $122,00.
For those married folk filing joint tax returns, full contributions could be made if their combined modified adjusted gross income fell below $169,000. Contributions were allowed in increasingly limited amounts until the couple’s joint income reached $179,00; above that, contributions were not allowed in 2011.
Married filers with separate tax returns are severely limited in regards to Roth IRA contributions. These taxpayers may only contribute a partial contribution if their income is less than $10,000.
2011 Contribution Limits
The 2011 Roth IRA contribution limits remained unchanged from the 2010 limits.
All qualifying individuals could contribute $5,000 to a Roth IRA in 2011. Individuals age 50 or older could also make an additional “catch-up” contribution of $1,000, bringing the total to $6,000 per year.
2011 Age Rules
There were no changes to the age rules with Roth IRAs for 2011. Anyone with earned income within the eligibility levels named above may contribute to a Roth IRA, regardless of age.
2011 Roth IRA Conversion Rules
The 2010 tax year saw a major change in Roth IRA rules. This was the first year individuals with incomes greater than $100,000 were allowed to convert a Traditional IRA to a Roth IRA (and in fact, were allowed to contribute to a Roth IRA in general). Additionally, the tax increase incurred from converting to a Roth IRA could be spread over the following two tax years (2011 and 2012), as long as the conversion occurred before Dec. 31, 2010.
In 2011, as we saw above, those earning more than six figures annually could continue to convert their IRAs; the income cap has been removed. However, the tax incurred from converting to a Roth IRA in 2011 had to be paid with their 2011 return; there was no two-year spread.
History of Roth IRA Contribution Limits
Contribution limits have changed significantly since the Roth IRA was introduced. In 2002 the maximum was only $3,000. It increased 66% from that time to 2011.
Similar changes have been made to the catch-up contributions. Starting in 2006, the catch-up contribution limit for those age 50 or older doubled from $500 to $1,000.
In the past, the IRS’ adjustments were made somewhat arbitrarily and in round increments of $500 or $1,000 per year.
Starting in 2010, any adjustments made to contribution limits were indexed to inflation. Moving forward, they will continue to be done in this way. That, in and of itself, is an excellent idea. As inflation drives the cost of living higher and higher, contributions in the same nominal amount would gradually be worth less and less. It’s good that the income eligibility levels will reflect inflation, too. Since salaries would presumably rise along with the cost of living, more people would find themselves in the phase-out brackets, without some sort of indexing.