Can I Contribute to a Roth IRA?

Generally, you can contribute to a Roth IRA if you have taxable compensation (defined later) and your modified AGI (defined later) is less than the amount shown for your filing status in Table 2.1.

Is there an age limit for contributions? Contributions can be made to your Roth IRA regardless of your age.

Can I contribute to a Roth IRA for my spouse? You can contribute to a Roth IRA for your spouse provided the contributions satisfy the spousal IRA limit (discussed in chapter 1 under How Much Can Be Contributed?) and your modified AGI is less than the amount shown for your filing status in Table 2.1.

Compensation. Compensation includes wages, salaries, tips, professional fees, bonuses, and other amounts received for providing personal services. It also includes commissions, self-employment income, and taxable alimony and separate maintenance payments. For more information, see What Is Compensation? in chapter 1.

Modified AGI. Your modified AGI is your adjusted gross income (AGI) as shown on your return modified as follows.

1. Subtract any income resulting from the conversion of an IRA (other than a Roth IRA) to a Roth IRA (conversion income). Conversions are discussed under Can I Move Amounts Into a Roth IRA?, later.
2. Add the following deductions and exclusions:
   1. Traditional IRA deduction,
   2. Student loan interest deduction,
   3. Foreign earned income exclusion,
   4. Foreign housing exclusion or deduction,
   5. Exclusion of qualified bond interest shown on Form 8815, and
   6. Exclusion of employer-paid adoption expenses shown on Form 8839.

If the result is more than the Roth IRA limit and you have other income or loss items, such as social security income or passive activity losses, that are subject to AGI-based phaseouts, you may refigure your AGI solely for the purpose of figuring your modified AGI for Roth IRA purposes. Refigure your AGI without taking any income from conversions into account. (If you receive social security benefits, use Worksheet 1 in Appendix B to refigure your AGI.) Then go to 2 above to refigure your modified AGI.

Conversion income must be taken into account when computing other AGI-based phaseouts and taxable income for the year. You disregard conversion income only for the purpose of figuring your modified AGI for Roth IRA purposes.

How Much Can Be Contributed?

The contribution limit for Roth IRAs depends on whether a contribution is made only to Roth IRAs or to both traditional IRAs and Roth IRAs.

Table 2.3. Maximum Roth IRA Contribution Worksheet

Roth IRAs only. If a contribution is made only to Roth IRAs, the maximum contribution limit is the lesser of $2,000 or your taxable compensation. If your modified AGI is above a certain amount, your contribution limit may be reduced, as explained later under Contribution limit reduced.

Roth IRAs and traditional IRAs. If you contribute to both Roth IRAs and traditional IRAs established for your benefit, your contribution limit for Roth IRAs is the lesser of:

1. The maximum contribution limit reduced by all contributions (other than employer contributions under a SEP or SIMPLE IRA plan) for the year to all IRAs other than Roth IRAs, or
2. The maximum contribution limit reduced because your modified AGI is above a certain amount, as explained next.

Simplified employee pensions (SEPs) are discussed in chapter 4. Savings incentive match plans for employees (SIMPLE) are discussed in chapter 5.

Contribution limit reduced. If your modified AGI is above a certain amount, your maximum contribution limit is gradually reduced. Use Table 2.2 to determine if this reduction applies to you.

Figuring the reduction. If your modified AGI is within the range shown in Table 2.2 for your filing status, figure your reduced contribution limit as follows.

1. Start with your modified AGI.
2. Subtract from the amount in (1):
   1. $150,000 if filing a joint return,
   2. $-0- if married filing a separate return, and you lived with your spouse at any time during the year, or
   3. $95,000 for all other individuals.
3. Divide the result in (2) by $15,000 ($10,000 if filing a joint return or married filing a separate return).
4. Multiply the maximum contribution limit (before reduction by this adjustment and before reduction for any contributions to traditional IRAs) by the result in (3).
5. Subtract the result in (4) from the maximum contribution limit before this reduction. The result is your reduced contribution limit.

Round your reduced contribution limit up to the nearest $10. If your reduced contribution limit is more than $0, but less than $200, increase the limit to $200.

Example. You are a single individual with taxable compensation of $113,000. You want to make the maximum allowable contribution to your Roth IRA for 2000. Your modified AGI for 2000 is $100,000. You have not contributed to any traditional IRA, so the maximum contribution limit before the modified AGI reduction is $2,000. Using the 5 steps just described, you figure your reduced Roth IRA contribution of $1,340 as follows.

1. Modified AGI = $100,000
2. Subtract the amount for your filing status from line 1 ($100,000 - $95,000) = $5,000
3. Divide line 2 by the amount for your filing status ($5,000 x $15,000) = .3333
4. Multiply the maximum contribution limit (before adjustment) by line 3 ($2,000 x .3333) = $667
5. Subtract line 4 from the contribution limit (before adjustment) ($2,000 - $667) = $1,340
   This is your reduced Roth IRA contribution limit of $1,333 rounded up to the nearest $10.

When Can I Make Contributions?

You can make contributions to a Roth IRA for a year at any time during the year or by the due date of your return for that year (not including extensions).

What If I Contribute Too Much?

A 6% excise tax applies to any excess contribution to a Roth IRA.

Excess contributions. These are the contributions to your Roth IRAs for a year that equal the total of:

1. Amounts contributed for the tax year to your Roth IRAs (other than amounts properly and timely rolled over from a Roth IRA or properly converted from a traditional IRA, as described later) that are more than your contribution limit for the year, plus
2. Any excess contributions for the preceding year, reduced by the total of:
   1. Any distributions out of your Roth IRAs for the year, plus
   2. Your contribution limit for the year minus your contributions to all your IRAs (other than education IRAs) for the year.

Withdrawal of excess contributions. For purposes of determining excess contributions, any contribution that is withdrawn on or before the due date (including extensions) for filing your tax return for the year is treated as an amount not contributed. This treatment only applies if any earnings on the contributions are also withdrawn and are reported as income earned and receivable in the year the contribution was made.

Applying excess contributions. If contributions to your Roth IRA for a year were more than the limit, you can apply the excess contribution in one year to a later year if the contributions for that later year are less than the maximum allowed for that year.

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