Roth IRAs

Income Limits for Roth Contributions in 2014

High earners can’t make direct contributions, but there’s a backdoor way to stash money in a Roth.

I’ve seen two different numbers for the income limit for married couples to be eligible to contribute to a Roth IRA in 2014 -- $181,000 and $191,000. Which one is accurate?

The $181,000 represents the maximum modified adjusted gross income a married couple filing jointly in 2014 can have and still contribute the full $5,500 to a Roth IRA (or $6,500 if 50 or older anytime during 2014). The ability to contribute money to a Roth disappears entirely if your joint income is $191,000 or more.

If your modified adjusted gross income on a joint return is between $181,000 and $191,000, the amount you can each contribute to a Roth is based on where your income falls within the phaseout zone. If, for example, your modified AGI is $186,000 (halfway through the phaseout zone), you can each contribute $2,750 to a Roth IRA (half of the contribution amount). For single filers and heads of household, the income levels for the phaseout are $114,000 to $129,000. If you’re married filing separately, you cannot make Roth IRA contributions if your modified adjusted gross income is $10,000 or more (which essentially rules out most married couples filing separately from making Roth contributions).

See the worksheet on page 67 of IRS Publication 590, Individual Retirement Arrangements, to calculate how much you can contribute. (Note that this worksheet is for 2013 contributions; the numbers are slightly different for 2014. See Retirement Account Contribution Limits for 2014 for both years’ income limits.)

To calculate your modified adjusted gross income, start with your adjusted gross income from the bottom of page 1 of Form 1040, subtract any amounts you converted or rolled over from a qualified retirement plan to a Roth IRA, and add back deductions for any contributions you made to a traditional IRA plus any deductions for interest on student loans and for tuition and fees, exclusions of qualified bond interest, and a few other deductions. See Worksheet 2-1 on page 65 of IRS Publication 590 for the full list.

If you’re close to the cut-off and worry you might make more than the limit by the end of 2014, go ahead and contribute to a Roth early in the year. If you end up contributing more than your income allows, you can avoid the 6% penalty on excess contributions either by withdrawing your contributions (and any earnings on those contributions) by the tax-filing deadline or by asking your IRA administrator to switch your contributions -- plus all the earnings on that money -- into a traditional IRA. The deadline to switch to a traditional IRA is October 15, 2015, for 2014 contributions (or October 15, 2014, if you discover you crossed the income limit for 2013 contributions). See Undoing a Roth IRA for details.

And if you end up earning too much to contribute to a Roth at all, you can still contribute to a nondeductible traditional IRA and convert the money to a Roth. The tax bill on the conversion will be based on the ratio of nondeductible contributions to the total balance in all of your traditional IRAs. See How to Fund a Roth IRA If You Earn Too Much for details.

For more information about the value of a Roth, see 8 Reasons You Need a Roth IRA Now and 10 Things You Must Know About Roth Accounts.

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