The questions have started coming in regarding the 2020 and 2021 income limits for Roth IRA contributions. Planning ahead for taxes is always a good idea. However, sometimes, you can get out a little bit too far.
The IRS publishes various numbers, tax brackets, and the like for the next tax year during the fall of the previous year, depending upon what the number is, and how it is to be calculated. Maximum salary limits for Roth IRA contributions in 2020, for example, were known well in advance because the number was set by the IRS in advance.
However, the income limitations for Roth IRA contributions are indexed for inflation. In other words, the IRS must wait until it has the proper inflation index calculation according to its rules and regulations. Then, it must apply that inflation amount to the Roth IRA contribution limits for income and compute new Roth IRA income phase-out limits and the maximum salary allowed to make Roth contributions at all.
Don’t forget, the law removing the salary cap for converting a traditional IRA to a Roth IRA has been made permanent, so you can covert your IRA to a Roth IRA regardless of how high your modified adjusted gross income (MAGI) is.
2020 Roth IRA Income Limits
For 2020, the income limit for Roth IRA contributions for married filing jointly is $196,000 for a full contribution up to the IRA contribution limits. The phase out is from $196,000 up to $206,000. A modified adjusted gross income above $206,000 does not allow for a Roth IRA contribution.
The income limits for Roth IRA contributions for single, or head of household, or married filing separately are $124,000 for a full contribution, $124,000 to $139,000 for a reduced, phased-out contribution. For modified adjusted gross incomes above $139,000 Roth IRA contributions are disallowed.
New Roth IRA Income Maximum Salary Limits for 2021
For 2021 if you are married filing jointly, you can contribute the full amount, up to the IRA contribution limit, if your modified AGI is below $198,000. You can contribute a reduced amount between $198,000 and $208,000.
If you are filing as single, or head of household, or married filing separately, you can contribute the full-amount if your modified AGI is below $125,000. You can contribute a reduced amount that phases out for higher incomes if you earn between $125,000 and $140,000.
You are ineligible to contribute to a Roth IRA in 2021 if your income exceeds $208,000, or $140,000 for filing as single, or head of household, or married filing separately.
See IRS Publication 590 for additional information.
By Brian Nelson – Brian is a former Certified Financial Planner and financial advisor. He writes for the Finance Gourmet and other financial publications. The material provided on this website is for informational use only and is not intended for financial or tax advice. ArcticLlama, LLC, FinanceGourmet.com, and Brian Nelson, assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own tax professional when making decisions regarding your tax situation.