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The Roth IRA is a very valuable retirement savings vehicle. There are several reasons that the Roth IRA is so valuable, including:
- qualified withdrawals are tax free
- withdrawal of regular contributions is available at any time for any reason
- there is never a Required Minimum Distribution for the original account owner
- beneficiaries can receive distributions from the account tax-free
With all of these benefits, you can see why the Roth IRA has become a very popular option for retirement savings, as well as for estate planning. So the question now becomes: Am I eligible to contribute to a Roth IRA?
Roth IRA Eligibility
The eligibility requirements for a Roth IRA are as follows:
- You must have earned income. This means you receive compensation in the form of wages, salaries, tips, professional fees, bonuses, commissions, self-employment income, nontaxable combat pay, and taxable alimony or maintenance. If you are married and you had no earned income (or your earned income is less than the maximum Roth IRA contribution amount), your Roth IRA contribution may be based on your spouse’s earned income.
- Your Modified Adjusted Gross Income (MAGI) must be less than:
- $193,000 (for 2019) if your filing status is Married Filing Jointly or Qualifying Widow(er); or
- 122,000 (for 2019) if your filing status is Single, Head of Household, or Married Filing Separately (and you did not live with your spouse at any time during the year); or
- $10,000 if your filing status is Married Filing Separately and you lived with your spouse at any time during the year.
And that’s it. You are not limited by participation in an employer-sponsored plan as you are with deductibility of a traditional IRA. There are a few limiting factors, though:
- You cannot contribute more than your earned income.
- A spousal contribution is allowed, as long as the total of contributions to personal and spousal IRAs doesn’t exceed the total of your own and your spouse’s earned income.
- You are limited by an annual amount (for 2019 it’s $6,000 plus an over age 50 “catch up” of $1,000). Your total IRA contributions (traditional and Roth added together) cannot exceed that annual limit.
- When your MAGI reaches a certain amount, your contribution amount will begin to be limited. You can visit this page for more details on the MAGI limits and how they are applied.
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And if you’ve come here to learn about queuing waterfowl, I apologize for the confusion. You may want to discuss your question with Lester, my loyal watchduck and self-proclaimed “advisor’s advisor”.
#2 is a little confusing. Although it is technically correct, my income exceeds that limit and yet my wife and I grow our Roth IRA’s every year. Many physicians and other “high-earners” think a Roth doesn’t apply to them. It still can. I use both a Roth 401K and a “back door” Roth.
Good point! I should probably add a section discussing (or at least referring to) back door Roth contributions. Thanks for pointing it out!
Jim, am I correct in assuming the rules for opening a Roth IRA (e.g. MAGI thresholds) don’t apply if the purpose is for a qualified transfer of accumulated Roth 401K assets?
Thanks.
That’s correct, there are no income restrictions on rollovers. Or conversions, for that matter.
Thanks for mentioning all the important points about Roth IRA. I am sure that this will be of great help to everyone who is planning for a retirement.