Money Girl tackles a reader question about IRA contributions.
A Money Girl reader named Susan P. asks:
"I contribute to a 401(k) at work, but my husband’s company doesn’t offer one. Can he contribute to a Roth IRA if our combined income is over $175,000?"
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ANSWER: You can contribute to a Roth IRA at any age if you have taxable compensation (or are married to someone who does) and your income doesn’t exceed an annual limit.
For 2012, the contribution you can make to a Roth IRA equals your taxable compensation up to $5,000 or $6,000 if you’re age 50 or older.
Roth IRA Income Limits for 2012
Here are the Roth IRA income thresholds for 2012:
• $183,000 if you file jointly or are a qualifying widow(er)
• $125,000 if you file as single, head of household, or married filing separately and you did not live with your spouse during the year
• $10,000 if you are married filing separately and you did live with your spouse at any time during the year
If your modified adjusted gross income (MAGI) is equal to or exceeds the above limits for your tax filing status, you’re ineligible to contribute to a Roth IRA.
If you approach the limits, you can still contribute to a Roth IRA, but the amount is phased out or reduced when your MAGI is in the following ranges:
• Filing jointly or as a qualifying widow(er): $173,000 to $183,000
• Single, head of household, or married filing separately and you did not live with your spouse during the year: $110,000 to $125,000
• Married filing separately and you did live with your spouse at any time during the year: $0 to $10,000
It’s important to remember that these cutoffs are based on MAGI—not gross income. So even through Susan’s household income of $175,000 falls within the phase out range (assuming she files taxes jointly), the couple’s MAGI may be less.
You can figure your MAGI for Roth IRA purposes and the amount of a reduced contribution using worksheets in IRS Publication 590: Individual Retirement Arrangements (IRAs).
See also: Your Guide to the Roth IRA, Part 1
How to Withdraw Roth IRA Contributions
If you’re unsure whether your income will allow you to make a Roth IRA contribution, you can always make contributions throughout the year, and then withdraw them if you discover that you earned too much to qualify.
You have until your tax filing due date to make IRA contributions for the prior year. For instance, you have until mid-April of 2013 to make a contribution for the 2012 tax year.
Any traditional or Roth IRA contributions (plus earnings) that are withdrawn on or before the due date (including extensions) are treated as if they were never contributed.
That means you could withdraw contributions erroneously made to a Roth IRA and put them in a traditional IRA instead. There are no income restrictions for making contributions to a traditional IRA. Just make sure you complete the Roth IRA withdrawal and traditional IRA contribution by your tax filing deadline.
You’re allow to have both a traditional and Roth IRA. You can even contribute to both in the same year as long as the total amount doesn’t exceed your allowable limit. For instance, if you’re younger than 50, you could contribute $4,000 to a Roth IRA and $1,000 to a traditional IRA in the same year.
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