I often get asked, “How much can I put in my Roth IRA?” My answer is “Well, it depends.” Some of the primary factors that affect how much you can put in your Roth IRA are your age, if you have contributed to another IRA account and how much you’ve put in that other IRA account and your Modified Adjusted Gross Income. The other factor is the maximum amount you can put in your Roth IRA changes from year to year and these changes will reflect the cost of living and inflation.
Currently, if you are under age 50 you can contribute $5,000 per year to your Roth IRA. If you are over 50 then you are allowed an additional $1,000 per year as a catch-up allowance per year. So, in other words, you can put in $6,000 a year into your Roth IRA account if you’re over age 50.
The other factor is if you are contributing to another IRA account such as a traditional IRA. The amount you put in your traditional IRA can decrease the amount and offset the maximum amount you can put in your Roth IRA. You should contact Best IRA Rescue.com at (888) 938-5872 or contact your financial planner or accountant to see if you have other IRA accounts that you may be contributing to.
Your Modified Gross Adjusted Income (MAGI) can affect how much you can put in your Roth IRA as well. The Modified Gross Adjusted Income is the amount you claim on your tax return before you claim any deductions. For 2009, if you make over $166,000 per year for married couples filing joint or if you make over $105,000 as a filing single then you will enter a phase-out stage whereby the maximum you can end up putting or contributing to your Roth IRA account diminishes as your MAGI increases.
If you meet the criteria for allowing to contribute to your Roth IRA then you should contribute to a maximum amount you can afford. Remember, putting money in your Roth IRA account is after-tax dollars. This means that you pay your taxes first when you file your taxes then you contribute that remainder amount to your Roth IRA. The advantage of this is that when you reach age 59 1/2 you are allowed to withdraw your retirement investments tax-free.
On other hand, when you put money in your traditional IRA account you pay your taxes when you reach retirement at age 59 1/2. So, in other words, when you contribute to your traditional IRA it is before taxes. The disadvantage is that you must pay your taxes at retirement when you withdraw the money and you will most likely be paying much more taxes since your investment has grown. So, in general, the Roth IRA has good tax advantages over the long term.
You should determine how much you can put in your Roth IRA by creating a budget plan. You may talk to one of our representatives or discuss this with your financial planner or accountant. It’s quite easy to create a budget plan if you have a fixed income. For those who do not have a fixed monthly salary or the income varies from month-to-month then you will have to be more prudent with managing your finances. Having a basic plan based on your monthly income whether it’s fixed or varies will help you put money into your Roth IRA to build a comfortable nest egg in your retirement.
There is one other IRA retirement plan that does not have the Modified Gross Adjusted Income limits as the regular Roth IRA. This is called the Roth IRA on Roids or Roth on Roids(tm). The Roth IRA on Roids has no income level limits and offers IRA tax-savings with benefits of a guaranteed death benefit, guaranteed principal, tax-free growth, and tax-free distributions from your policy loans. This is a real tax-savings opportunity for those individuals that have a MAGI that exceeds the Roth IRA income limits. Contact us with any IRA questions at (888) 938-5872.
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