In this video we will breakdown Traditional IRA and Roth IRA phase out limits and how to calculate ones maximum contribution if within said Modified Adjusted Gross Income Limits.
0:00 – Intro
0:52 – Phase Out Limits/Ranges
4:30 – How to Calculate Your Contribution Limit
8:27 – The Equation
9:12 – Misc.
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Individual Retirement Accounts (IRAs) and Roth IRAs are popular retirement savings options for many individuals. One key aspect to consider when contributing to these accounts is the phase out range, which determines the maximum amount you can contribute based on your income level.
The phase out range for IRAs and Roth IRAs is based on your Modified Adjusted Gross Income (MAGI) and tax filing status. For traditional IRAs, if you are covered by a retirement plan at work, the phase out range for single filers is between $66,000 and $76,000, and for married filers it is between $105,000 and $125,000. If you are not covered by a retirement plan at work but your spouse is, the phase out range is between $198,000 and $208,000 for married filers.
For Roth IRAs, the phase out range for single filers is between $125,000 and $140,000, and for married filers it is between $198,000 and $208,000. It’s important to note that the phase out ranges are subject to change each year due to inflation adjustments.
To calculate your contribution limit, first determine your MAGI by adding back certain deductions to your Adjusted Gross Income (AGI). Then, compare your MAGI to the phase out range for your specific tax filing status and type of IRA. If your MAGI falls within the phase out range, you will need to calculate a reduced contribution limit.
For example, if you are a single filer with a MAGI of $70,000 and you want to contribute to a traditional IRA, your contribution limit would be calculated as follows:
$70,000 – $66,000 = $4,000
$76,000 – $66,000 = $10,000
$10,000 – $4,000 = $6,000
In this case, your contribution limit would be $6,000 for the year.
It’s important to stay informed about the current phase out ranges and calculate your contribution limit accurately to maximize your retirement savings potential. Consulting with a financial advisor or tax professional can also help you navigate the complexities of IRAs and Roth IRAs. By making informed decisions about your retirement savings, you can work towards a secure financial future.
In conclusion, understanding the phase out ranges and calculating your contribution limit for IRAs and Roth IRAs is essential for effectively planning your retirement savings strategy. Keep track of changes to the phase out ranges and consult with experts to ensure you are making the most of your retirement investments.
Here is the calculation succinctly:
Allowed_Contribution = Max_Contrib_for_your_age_and_filing_status * (1-(Your_MAGI – Lower_phase_out_income)/(Upper_phase_out_income – Lower_phase_out_income))
As @ericwinter4513 said, this is hard to find as most resources just say "the phase out range is…" without any explanation. I guessed it's a straight line proportional percentage, but it's nice to see that confirmed by a CFP. I find a single calculation easier to work with, versus all the intermediate numbers shown in the video.
This information was surprisingly hard to find! Tons of resources out there telling you what the range is, but not explaining what it actually means if you're income falls into that range. So thanks!
Thanks for explanation