There is great importance in knowing the Roth IRA limits. Even though this type of IRA is more flexible than other IRA options, it also has its share of restrictions and limitations. Two known limitations are contribution limits and income limits which we will both discuss in this article. These two factors can determine your eligibility in starting or opening your own Roth IRA account.
Since we will be talking about taxes and limits, it is important to know that the information relating to limits will have slight differences each year. The limits for this years will be presented later on to show you how these changes work.
Take note that if you find that you are eligible to apply for a Roth IRA it is advised to open one as soon as possible. For one you will have a lot of benefits, for another, it would be great to start contributing so you would have greater earnings after retirement. Roth IRA is a tax-free method of settling your affairs after retirement. This allows people with moderate income to save effectively, without having any restrictions when it comes to age. People of all ages can open an IRA account taking into consideration that compensation is the only restriction.
Upon reaching the age of 59 and a half years old you are entitled to withdraw certain amounts from your IRA without having to pay taxes. Unlike standard IRA accounts, that collect taxes, you be entitled to your account tax-free, without being forced to accept a certain number of distributions.
The adjusted gross income, or AGI is used to evaluate if you are eligible for a Roth IRA. This is the amount that you earn after computing adjustments that comply with federal income tax requirements. In most cases, this is included in Form 1040 before it is sent to the IRS.
Your employer or accountant will be able to present this figure to you, but it is still important o have a copy of Form 1040. This form will give you the AGI reference. This figure will allow you to decipher if you are eligible, and help you decide whether or not to get a Roth IRA.
Now let us talk about annual maximum contribution limit. What are Roth IRA contribution limits? To give you the numbers. This year, 2010, an individual who is under 50 years of age can only contribute a maximum of $5,000 to Roth IRA. Given that, you can contribute and additional $1,000 to increase your annual contribution to $6,000.
Individuals are entitled to own a traditional and a Roth IRA; However, the Roth IRA Contribution Limit should still be within $5,000 between the two accounts. In this case, if you decide to contribute $2,500 to a traditional IRA, you will only be allowed to contribute the remaining $2,500 to Roth IRA.
You should also take note that IRS does not allow contributions that are greater that your earnings. This means that the amount you earn is the maximum amount which you can contribute.
When it comes to Roth IRA contribution limits, there are several factors that determine the exact amount that an individual is permitted to contribute towards his account. Once you have qualified on the basis of your income, you will only need to understand the limits that affect you regarding contributions.