By: Clay Wyatt
The rich get richer and the poor get poorer, right?
That is not always the case with Roth IRAs. Counter-intuitively, the amount that can be contributed to a Roth IRA diminishes once certain income thresholds are met. Eventually, if you make enough money, you won't be able to contribute at all. So in the case of IRA tax benefits, the rich don't get the benefits.
Want to know how income affects Roth IRA contributions in more detail. Let's take a closer look at how income affects Roth IRA contributions.
Married Couples Who File Jointly
If you are married and file jointly, you can contribute up to the maximum amount to your Roth IRA each year if you and your spouse make a combined income that is less than $169,000. The maximum annual contribution amount is currently at $5,000 for those who will be under age 50 at the end of the year and $6,000 for those who will be age 50 or older by the end of the year.
You may wonder how income affects Roth IRA contributions for couples who make $169,000 or more. For couples who make $169,000 to $179,000, the amount gradually decreases. For couples who make over $179,000, no contributions are allowed at all.
Keep in mind that the contributions go into the Roth IRA without any tax benefit but the distributions come out IRA tax free. And because of the Roth IRA contribution limits, only those of middle and lower income benefit.
Alright, we've seen how married couples who file jointly are affected by their own income. Singles may wonder how income affects Roth IRA contributions for them.
If you are single, you can contribute the maximum amount (same as for married people) as long as you make under $107,000. If you make more than this amount, it may not be the best idea in the world to ask for a pay cut so that you can contribute more to your Roth IRA. However, you will have to deal with lower contribution limits from this point on.
The contribution limit is gradually reduced for singles who have an income of $107,000 to $122,000. After the $122,000 mark, you won't be able to contribute to a Roth IRA at all.
Conclusions on IRA Tax benefits
Now you know how income affects Roth IRA contributions and how the rich don't get the benefits that others can. However, it still is not bad to have a high income and there are plenty of other ways to invest for retirement, so check with a retirement advisor if you'd like to find a retirement tax shelter that works for you.