Tom Talks about Roth IRA Restrictions
Transcript:
Katie Nealis: Here’s another great question, I want to contribute to a Roth IRA. Are there restrictions that I need to know about?
Tom Vaughan: Yeah, so there’s two things with a Roth IRA. One is contributing money. And the other one is converting money from an IRA to a Roth IRA. So that’s a whole nother concept, the concept of conversion. And that’s Unlimited, you can do that as much as you want. But if you’re going to add to Roth, first of all, you have to have income, you have to be making some money, W2, type income, sorry, W2 predominantly income. But nonetheless, if you make up to $6,000, you can put $6,000 into, you know, the Roth. If you’re over age 50, you can actually add another $1,000 to that do what’s called a catch up, which is 7000, total.
But you also have an upward limit on income, so you can’t make too much income. So for a couple, if you make $198,000 to $208,000, you can still contribute to a Roth, but it phases down as to how much so you might not be able to do the full $6,000 or $7,000, over $208,000, you cannot contribute to a Roth. And what they’re talking about with that 200 $1,000 is what’s called modified adjusted gross income, which is a fairly complicated concept. It’s not even on your tax return, you have to calculate it, you basically take your taxable income and add some things back in. And so for a single person, the realm is 128 125,100 $40,000.
So if you’re in that, you know, range, then you would have just portion that you could put in that $6,000or $7,000, above $140,000, you couldn’t put in anything. And below 125, you can do it no problem. And if you put money in and you are not qualified to put money in because you make too much, they actually charge you a penalty. I believe it’s 6% a year right now, so you got to be careful with that and not over contribute to a Roth. But those are kind of the rules and pieces that you want to look at as far as that goes. So very, very, you know, good area, it’s important to kind of understand how those things work. And of course, they keep changing the tax laws and we all have to keep track of that and keep up on that. But that’s that’s where it is right now.