Today we’re talking about how much you can contribute to a Roth IRA if you find that your income is nearing the max income allowed for the Roth IRA. We’ll go over the exact way to calculate your phase-out contribution amounts for single savers as well as married filing jointly.
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As the popularity of Roth IRAs continues to grow, many individuals are curious about the maximum allowable contribution they can make to their account. Understanding the maximum allowable Roth contribution is essential for maximizing your retirement savings and taking advantage of the tax benefits that come with a Roth IRA. Here’s how you can calculate the maximum allowable Roth contribution and make the most of your retirement savings.
The first step in calculating your maximum allowable Roth contribution is to determine your income. The maximum allowable contribution is based on your modified adjusted gross income (MAGI). For tax year 2021, the maximum allowable Roth contribution is reduced for single filers with a MAGI of $125,000 to $140,000 and for married couples filing jointly with a MAGI of $198,000 to $208,000.
Once you have determined your income, you can then calculate your maximum allowable Roth contribution. For tax year 2021, the maximum allowable contribution is $6,000 for individuals under the age of 50 and $7,000 for individuals aged 50 and older. However, if your income falls within the phase-out range, you will need to use a specific formula to calculate your reduced maximum allowable contribution.
For single filers, the formula to calculate the reduced maximum allowable contribution is:
Maximum Contribution = $6,000 – [($MAGI – $125,000) x $1]
For married couples filing jointly, the formula is:
Maximum Contribution = $6,000 – [($MAGI – $198,000) x $1]
Once you have calculated your reduced maximum allowable contribution, you can then make your contribution to your Roth IRA. It’s important to note that if you contribute more than the maximum allowable amount, you may be subject to a 6% tax penalty on the excess contribution.
In addition to calculating your maximum allowable Roth contribution, it’s also important to consider the benefits of contributing to a Roth IRA. Unlike traditional IRAs, Roth IRAs offer tax-free withdrawals in retirement, and contributions can be withdrawn at any time without penalty. Additionally, Roth IRAs do not have required minimum distributions, giving you more flexibility in managing your retirement savings.
Ultimately, understanding how to calculate the maximum allowable Roth contribution is essential for maximizing your retirement savings and taking advantage of the tax benefits that come with a Roth IRA. By determining your income, using the phase-out range formula, and making the most of your contribution, you can make the most of your retirement savings and achieve your long-term financial goals.
but how do we get to our MAGI for starters?
So at this point skip Roth and do traditional IRA and then back door Roth?
So … you can't dump $19.5k into any of these retirement accounts?
How do you not enjoy math when your literal job is to work with numbers lol
In need of your assistance, to get a better grasp on how this is calculated.
My gross income is $2,000 and my contributions or Roth 401k is 6% (to which the company match 100 of the first 4%), tax deductions are 24% and benefits are 3%.
My 6% contribution is calculated from my $2,000 gross pay. I was under the impression that considering the Roth 401k is an after tax basis contribution, the 6% will be calculated after the 24% tax deduction – which is $1,520.00 out of my gross pay of $2,000.
Also, I receive commissions as well. The company takes out 4% from my commission for 401k on top of the standard 6% that i contribute. So let’s say my commission is $500.00 they deducted 4% and then the remaining $480.00 will be included with my standard gross and the 6% I contribute for Roth 401k is calculated from the two incomes combined – gross income.
Do you by any chance know why?
Looking forward to your comments.
Please do a video on how to calculate your modified adjusted gross income for married couples filing jointly
Does the amount rolled-over from a 401k to Roth IRA counts towards MAGI? Can someone please tell me.
This video helped me!
Great video! Want to see more math based videos like this, after all this is finance and we shouldn't be avoiding these topics. Thanks
Can I put more money in my ira then the max, so long as I withdraw the excess before the end of the year?
Oh I hate the IRS
I think that it should divided not multiplied by 10k and 15k. I had no idea about the phase out range. I always thought there was a hard stop. Thanks for the video
Did you mean 7,000 divided by 10,000 equals .70 at 3:25 in the video? Either way, thanks for all your help! Love your videos and advice.
Thanks Dustin.. not sure if you know much about it. How about a video on whether whole life insurance is a good long term Investment, in order to pull money out when the market is down.
Thanks Dustin great to get the "easy way" to figure it out Ha ha
Did you start pre-gaming for Wine and Wealth tomorrow?
Married jointly…is that number per Roth IRA or across both Roth IRAs
What is the penalty if we contributed $6K and made over $203K?
Can you just do a backdoor conversion (From Tradition IRA) to deposit the max $6K?
How to calculate MAGI?
Good information as always Dustin!
Am I crazy or did you mean 7,000 / 10,000???