In this video, I answer the question “Let’s say if a single person has a $140,000 annual income and contributes the full $18,500 into his/her 401k. Can that person still contribute to a Roth IRA?”

The answer to this Roth IRA contribution limit talks about the income limits, contribution limits, Roth conversions, and Backdoor Roth IRA contributions. In the end, it’s about figuring out the various ways to boost your retirement savings with Roth IRA contributions.

If you have questions about financial planning, wealth management or taxes, leave your question in the comments below.

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Roth IRA Contribution Limits: A Guide to Maximize Your Retirement Savings

retirement planning is a crucial aspect of personal finance. One popular retirement savings vehicle is the Roth Individual retirement account (IRA). Offering tax-free growth and tax-free qualified withdrawals, a Roth IRA can be a powerful tool to secure your financial future. However, it is essential to understand the contribution limits to make the most of this retirement account.

What are Roth IRA contribution limits?
The Internal Revenue Service (IRS) sets annual contribution limits for various retirement accounts, including the Roth IRA. These limits determine the maximum amount you can contribute to your Roth IRA in a given year. The contributions can be made up until the tax filing deadline for that year, usually April 15th of the following year.

For 2021 and 2022, the maximum annual contribution limit for a Roth IRA is $6,000 for individuals under 50 years old. If you are 50 or older, you are eligible for an additional catch-up contribution of $1,000, making your total contribution limit $7,000.

It is important to note that these limits apply to individuals and not per account. If you have multiple Roth IRAs, your combined contributions to all the accounts must adhere to these limits.

Modified Adjusted Gross Income (MAGI) limits
While the annual contribution limits are straightforward, the ability to contribute to a Roth IRA may vary based on your Modified Adjusted Gross Income (MAGI). MAGI is calculated by adjusting your gross income with certain deductions and exclusions allowed by the IRS.

For the year 2021, the phase-out range for single individuals begins at $125,000 and ends at $140,000. If your MAGI falls within this range, your contribution limit may be reduced. Individuals with MAGI exceeding $140,000 are not eligible to contribute directly to a Roth IRA.

For married couples filing jointly, the phase-out range for 2021 starts at $198,000 and ends at $208,000. Similar to individuals, if you fall within this range, your contribution limit will be reduced, and contributions are not allowed beyond $208,000.

Contributions for high-income earners
High-income earners may utilize the “Backdoor Roth IRA” strategy to contribute to a Roth IRA, even if they exceed the income limits. This involves making a non-deductible contribution to a traditional IRA and then converting it into a Roth IRA. However, it’s important to consult with a financial advisor or tax professional before undertaking this approach, as it can trigger tax implications.

Key Takeaways:
1. For 2021 and 2022, the maximum annual contribution limit for a Roth IRA is $6,000, with an additional catch-up contribution of $1,000 for individuals aged 50 or older.
2. Contribution limits apply to individuals, not per account if you have multiple Roth IRAs.
3. MAGI limits determine eligibility to contribute directly to a Roth IRA, with phase-out ranges for both single and married individuals.
4. High-income earners may consider utilizing the “Backdoor Roth IRA” strategy but should seek professional advice before doing so.

In conclusion, understanding the Roth IRA contribution limits is vital for maximizing your retirement savings. By staying informed about these limits and potential income restrictions, you can make the best decisions regarding your financial future. Consider speaking with a financial advisor to evaluate your options and develop a comprehensive retirement plan that aligns with your goals and circumstances.