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A Roth IRA provides generous tax breaks for retirement investing, but there are annual Roth IRA contribution limits that are affected by household income. These limits can change from one year to the next, and your age also affects how much you can invest.
“The 2019 Roth IRA contribution limit is $6,000 for those under age 50 and $7,000 for those over age 50,” explained Wes Brown, a certified financial planner and senior advisor with the financial advisory firm Rather & Kittrell.
This limit is the maximum you can contribute. As the table below shows, once your income reaches a certain level, Roth IRA contribution limits decline until you’re not allowed to contribute anything.
Eligible to contribute full amount ($6,000)*
Eligible to contribute reduced amount
Not eligible to contribute
Income between $122,000.01 and $137,000
Income over $137,000
Income between $193,000.01 and $203,000
Income over $203,000
Income over $10,000
Calculating your phase out contributions
If your income is below the threshold at which contributions start phasing out, it’s easy to know how much you can contribute. If your income is the range where you’re still allowed to contribute but can’t contribute the full amount, you’ll need to figure out your max Roth IRA contribution. Here’s how the math works out:
- Calculate your modified adjusted gross income (AGI). Your modified AGI is your adjusted gross income with certain deductions added back in, including your deduction for IRA contributions.
- Subtract from your modified AGI $193,000 if married filing jointly or a qualified widow; $0 if married filing separately and you lived with your spouse; or $122,000 for all other cases.
- Divide the result by $15,000 ($10,000 if you’re married filing jointly, a qualifying widow or widower; or you’re married filing a separate return and you lived with your spouse during the year).
- Multiply the resulting number by the normal maximum contribution limit.
- Subtract the resulting number from the normal maximum contribution limit.
If you were married filing jointly and your modified AGI was $200,000, here’s what this calculation would look like:
- $200,000 – $193,000 = $7,000
- $7,000 / $10,000 = .70
- .70 x $6,000 (the normal contribution limit if you’re under 50) = $4,200
Your maximum contribution would be $4,200.
Tax benefits of Roth IRA
Roth IRAs work differently than traditional IRAs or traditional 401(k)s. With these other retirement accounts, you put money in with pre-tax dollars but are taxed when you withdraw money. When you invest in a Roth IRA, you put in after-tax dollars but the money grows tax-free and is withdrawn tax-free.
Roth IRAs also differ from traditional IRAs and 401(k)s in another important way. As Brown explained, Roth IRAs aren’t subject to required minimum distributions (RMD). With traditional IRAs or 401(k)s, you’re required to start taking some money out beginning at age 70 and a half. RMDs ensure you withdraw funds so you can be taxed on them.
Roth IRAs aren’t subject to RMDs, which means you can allow the money to keep growing as long as you’d like. You can leave your money to your heirs and they won’t pay taxes on withdrawals either — and can stretch withdrawals out over time.
What if you make too much to contribute to a Roth IRA?
If you make too much to contribute to a Roth IRA, you have other options.
“Many 401k plans offer a Roth option,” explained Brown. “If available, they’re often the best place to make contributions since there are no income limitations and you can contribute up to $19,000 if you’re under age 50 and up to $25,000 if you’re over age 50.”
Brown also advised that you can make “backdoor” contributions to a Roth IRA if you’re eligible to contribute to a traditional IRA. Traditional IRAs have no income limits unless you or your spouse are covered by a workplace retirement plan.
You can contribute to a traditional IRA and convert it to a Roth just by submitting some simple paperwork to your plan administrator; however, you must pay taxes on money you’re converting.
This isn’t an issue if you convert in the same year. Let’s say you contribute $6,000 to your IRA, take a $6,000 deduction, then convert the traditional to a Roth IRA. You would pay taxes on the $6,000. However, if you contributed to a traditional IRA in 2017, took a $6,000 deduction and converted the traditional IRA to a Roth in 2018, your taxable income in 2018 would be $6,000 higher. Additionally, if your initial $6,000 contribution had grown to $6,500, you’d be taxed on the full $6,500 you’re converting.
Of course, you also have the option to contribute to a traditional IRA and just leave the money there, but if you or your spouse are covered by a retirement plan at work, the income threshold at which eligibility phases out for traditional IRA contributions is lower than the threshold for a Roth IRA.
Where to open a Roth IRA
The right place to open your account will depend on the following several factors:
- How much help you want in managing investments. You’ll receive no help from a discount online brokerage. A robo-advisor, on the other hand, will ask simple questions and then allocate your money into an appropriate mix of investments.
- Account minimums. Some financial institutions require a minimum deposit.
- Investment options. Look for a financial institution that allows you to invest in a wide array of assets including individual stocks, Exchange Traded Funds and Mutual Funds.
- Fees. Most discount online brokerages don’t charge fees for opening accounts. The general rule is that If you get help managing your money, you’ll pay fees. Fees for robo-advisors are typically pretty low, but you could pay a lot for management by a registered investment advisor or wealth management firm.
- Commissions. You’ll generally pay commissions for buying and selling stocks and ETFs, but some brokerages offer commission-free ETFs or waive commissions if your balance is high.
What if you go over your contribution limit?
Keep careful track of contributions to your Roth IRA so you don’t go over the allowable contribution limit. However, if you do find that you contributed too much, you have a few options:
- Withdraw the excess. Contact your plan administrator and request to withdraw the funds. You won’t be penalized for early withdrawal if you’re only withdrawing contributions above the limit, but if the excess funds earned a return, you also must withdraw the earned amount.
- Move the contribution to the next tax year. You can apply over-the-limit contributions to the following tax year. If you went over in 2018, you could count some of the contributions as occurring in 2019. Just let your plan administrator know what you plan to do.
If you fail to be proactive about monitoring your contributions, you’ll end up owing a 6% excise tax on the contributions that exceeded your limit for the year. The excise tax is recorded on IRS Form 5329.
Knowing the max Roth IRA contribution limits is important. When you know how to calculate the amount you can contribute, you can make smart choices about investing for your future.