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Traditional and Roth IRA Contribution Limits

by Ryan Guina

One of the best ways to save for retirement is with an Individual Retirement Arrangement, or IRA. Because of the great tax advantages, the IRS places maximum contribution limits on IRAs. These caps are set by Congress, and can change from time to time. The IRS recently announced the 2014 Traditional and Roth IRA contribution limits. There is no change to the contribution limits from 2013. There were, however, some changes to the income limits for deductions for Traditional IRAs, and changes to the Roth IRA income eligibility limits. This article covers all you should need to know about 2014 IRA Contribution and Deduction Limits.

Traditional and Roth IRA Contribution Limits

Traditional and Roth IRA contribution limits

Max out your IRA if possible!

The Traditional and Roth IRA contribution limits are $5,500 for those under age 50. Persons age 50 and over can make additional catch up contributions of $1,000, for a total contribution limit of $6,500. You can have both a Roth IRA and a Traditional IRA in the same tax year, but you can’t exceed the contribution limit with your combined contributions to both accounts. Self-employed retirement plans may have different rules, so be sure to read up on the different self-employment tax plans or check with your accountant or financial advisor.

IRA Contribution Limits

Tax Year Contribution Limit Age 49 & Below Catch-up Contribution Limit Age 50 & Above Contribution Limit Age 50 & Above
2002-2004 $3,000 $500 $3,500
2005 $4,000 $500 $4,500
2006-2007 $4,000 $1,000 $5,000
2008 $5,000 $1,000 $6,000
2009 $5,000 $1,000 $6,000
2010 $5,000 $1,000 $6,000
2011 $5,000 $1,000 $6,000
2012 $5,000 $1,000 $6,000
2013 $5,500 $1,000 $6,500
2014 $5,500 $1,000 $6,500

Traditional IRA Deductions and Roth IRA Phase outs

The IRS has specific rules regarding who can contribute to an IRA. Traditional IRAs and Roth IRAs base certain eligibility guidelines on the taxpayer’s Modified Adjusted Gross Income (MAGI), which is calculated when you file your taxes.

Traditional IRA Deductions. Traditional IRA contributions are 100% tax deductible if you make less than the IRS deductibility phase out level ($60,000 if you are single, or $96,000 if you are married filing jointly). Tax filers can deduct a lower portion of their Traditional IRA contribution starting at $60,000 and can no longer deduct any of their contribution when they earn $70,000 or more. The phase out range for married filing jointly is between $96,000 and $116,000.

Roth IRA phase out. Like the Traditional IRA, the IRS has phase out rules for Roth IRA contributions. Tax filers will be able to contribute the maximum amount to their IRA if they don’t exceed certain income limits.

  • Single, Head of Household, or Married Filing Separately can contribute the maximum if their MAGI is $114,000 or less. Contribution rates phase out beginning at a MAGI above $114,001, and end at $129,000.
  • Married Filing Jointly can make maximum Roth IRA contributions for an income of  $181,000 or less. Roth IRA eligibility ends at $191,000.

These income limits apply to everyone, regardless of age, however, those age 50 and above can contribute an additional $1,000 per year as catch-up contributions. You only need to be age 50 or older for one day during the calendar year to be eligible for the catch-up contributions.

For specific questions, please see IRS Pub 590.

IRA Contribution Deadlines

You can make IRA contributions for the previous tax year up to the tax filing deadline of the current year. For example, you can make a contribution for the 2013 tax year until April 15, 2014. If you make an IRA contribution between January 2 and the tax deadline, you should designate which tax year your contributions are for, as you can also contribute to current year IRAs during the same time frame. Here are some recommendations for opening a Roth IRA.

Recommended brokerages for no fee IRAs: Some of the top discount brokerages for no fee IRAs include E*Trade, Scottrade Review, TD Ameritrade and TradeKing.


Published or updated January 14, 2014.
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{ 53 comments… read them below or add one }

1 Miranda

Thanks for the info! Always very useful. We’re hoping to get the max in for our Roth IRA coming up in 2010. That would be a huge goal met for us.

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2 fredct

There are basically no real changes are far as I can find. Due to the lack of inflation, both the standard deduction & personal exemption remain exactly the same for 2010 as 2009, which has been pretty unusual.

Looks like we might’ve dodged a bullet in one area (at least a source of controversy, even if it doesn’t effect many people)… there was some speculation that because of possible *deflation*, 401(k) contribution limits might drop from $16,500 back to $16,000. However, according to the following link, this does not appear to have happened:
http://www.irs.gov/newsroom/article/0,,id=214321,00.html

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3 Ryan

Fredtc, you’re right, there was some talk about the possibility of lower limits because contribution limits were pegged to inflation rates. That would have been an extremely unpopular move though, so there was no surprise to see limits remain the same this year.

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4 fredct

I don’t think it has anything to do with ‘popularity’. It’s a formula. When the formula says it goes up, it goes up… if it says it goes down, it goes down.

Unless Congress passed a bill modifying the formula (such as not allowing it to decrease), then the IRS’s hands were basically tied. I didn’t hear of such a bill, although one might have snuck under the news radar. Of course, just a tiny bit of inflation in Q3 could have (and apparently did?) avoid the situation.

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5 Financial Samurai

Ryan – Lowering the 401K limit would be bad. It would even upset Fredct, even though he thinks it’s ok to phase out ROTH IRA contributions if you make over $105,000 :)

A $16,500 contribution when you’re 22 fresh out of college, and staying at $16,500 when you’re 40 and making 5X more is regressive. The limits should follow age and income. Personally, I think the 401K limit should be raised to AT LEAST $50,000.

I love America because we vote with our pocket books. It’s ok if someone else suffers, so long as we don’t suffer and “dodge a bullet.”

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6 fredct

Actually I don’t think it would be particularly bad. If there’s deflation, then lowering the limit accordingly would be the proper thing to do. Both conceptually and under the law.

The limit *does* follow age, as you get another $5K when you hit 50. If you’d be proposing a graduated scale… eh, sure… 6 of one…

Sheltering as much as $50K of income is not viable and not necessary. It would also likely be a bad idea for the individual doing it, as putting that much away would lead you to have very very large required distributions in retirement, pushing them up in tax brackets, perhaps substantially. Not to mention the fact that it would reduce current tax revenue, meaning that you’d need to raise someone else’s taxes somewhere to keep revenue neutral & not raise the deficit.

By the way, I find your “its okay if someone else suffers” line interesting, since you seem to be proposing the same thing. All you’re saying is, it’s okay if someone else suffers as long as you get your tax break.

7 Financial Samurai

Fredct – Don’t know why there’s no button to resond to your post below. But my line on “if someone else suffers” is refering to your statement that it’s ok to phase out ROTH contributions for people making over $105,000. Those are the people suffering from policy.

I guess my facetiousness eludes you.. which is ok, b/c the better one is at incorporating someone else’s argument into a facetious line, the harder it is to tell one is being facetious! :)

Ok, ok, I agree with you. We should restrict certain types of people from being able to contribute to their ROTH. Those bad, underserving people!

8 Financial Samurai

I think it’s absolutely silly a single person who makes over $105,000/yr cannot contribute to his/her retirement. Why does the government penalize people for making more than $105,000?

Why does the government discriminate against certain income earners perplexes me.

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9 fredct

Financial Samurai,

Unfortunately your statement is flat out false. The number you mention is only applicable to Roth IRAs, which is only one of a plethora of retirement savings options.

There is *no* *one* who cannot contribute to their retirement. For starters, at work you very possibly have a 401K, to which you an contribute $16,500 – over $21,500 if you’re over 50.

If you’re self employed, you can set up a ‘solo 401k’ or a SEP IRA, the latter of which allows you to contribute up to $49,000 (I believe solo 401ks have the same contributions maximums as regular 401ks, but I honestly don’t know a lot about them).

Furthermore, if you’re single & employed by a company that does not have a 401k, then there is no income limitation on deductible IRA contributions! No matter how much you earn, you can make deductible contributions. This is also true if you’re married and neither of you are covered.

But here’s my biggest issue with your statement… no one anywhere has ever been prohibited from ‘contributing to his/her retirement.’ Why do you *need* tax benefits to do so? Everyone in the US who has income can contribution to a IRA. If you’re not eligible for a Roth, then you can contribute to a traditional IRA no matter your income! It may not be deductible, but it’s allowed for *everyone*. And, actually, even if it’s non-deductible, it’s still sheltered from yearly taxes!

Besides, why would you need a special retirement account? Anyone can set up a mutual fund or brokerage account, label it “my retirement account” and contribute to their hearts content. Millions if they so wish and can afford it.

Using words like “cannot contribute”, “penalize”, and “discriminate” is a silly way to look at not be granted an extra benefit. It’s a victimization mentality. And it’s entirely false anyway!

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10 Financial Samurai

Fredct – Excellent response, and exactly what I’m looking for. So, my follow up question to you is, if everybody is free, why do we have a phase out after $105,000 for the ROTH?

Why are we specfiically excluding anybody who is making more than $105-120,000 from contributing to a ROTH? What makes someone making $80,000 a year better than someone making $200,000 a year?

It’s important to end discrimination in America. We ended bigotry and racism. It’s about time we stop discriminating against people just because of their income levels.

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11 fredct

I think ‘discrimination’ is awfully overboard. I don’t see anything wrong with making a rule that certain tax benefits phase out at certain income levels.

Sure, you could drop it, but then you’d just have to raise marginal tax rates to stay revenue neutral, or else you’d have to increase the deficit.

It’s simply setting tax policy. It’s no different than the fact that people at higher income levels pay higher tax rates.

If people making more then that level are really so upset about “discrimination”, I would be more than happy to trade incomes with them so they can feel the joy of freedom. And I’ll happily be ever-so-slightly-‘repressed’ for the extra dough.

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12 Financial Samurai

Fredct – Why do we have to raise the marginal tax rate? You would be great to partake in my Flat Tax Debate over at FS.

We have a SPENDING problem, not a revenue problem. It’s the same with an individual going overboard in CC debt, and it’s the same with the country going overboard in the spending.

I can’t debate taxes here, b/c I’m all spent up, and it’s off topic. So if you want to debate, cya at FS.

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13 fredct

But, still, the same goes… reducing spending (which I’m all for if done correctly, but no one can ever agree on what ‘correctly’ means’) still takes money away from someone. Still *somebody* loses out in order for you to get your tax break. Is it worthwhile? Maybe, but that’s a value judgment. It’s no more of less correct than any other value judgment.

Our society has generally made the value judgment that it’s okay for those making well-above median salaries to pay higher tax rates than those making less, and losing out of some perks. You can disagree with that value system, but don’t pretend that you can give some people more without giving others less. It doesn’t work that way.

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14 fredct

I don’t see a reply button to yours either, so I’ll reply down here with quotes…

> “Those are the people suffering from policy.”

Suffering is way too strong. To me you’re not ‘suffering’ as long as you can still afford food & reasonable shelter, basically. But they are less well off under the policy, yes.

> “Ok, ok, I agree with you. We should restrict certain types of people from being
> able to contribute to their ROTH. Those bad, underserving people!”

It’s not a matter of being “bad & underserving” (sic). It is – as I said above – a value judgment on how the money is best used. I don’t get a EITC, is it because I’m bad & undeserving? No, it’s because I’m fortunate enough to make a good living.

I don’t get a major tax breaks for living costs, because so far I’ve chosen to rent & not buy a home. Is it because I’m bad & undeserving? No, it’s because society has chosen to financially reward homeownership and not renters. And do I agree with it? No, I could give you all sorts of reasons why I think it’s bad policy. And why, if it was up to me, I wouldn’t set things up that way. But that doesn’t mean I’m being “discriminated” against or being considered a bad person. It’s just because our country has chosen to distribute things in a way I wouldn’t agree with.

P.S. I may reply to your Flat Tax post when I get home this evening.

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15 Financial Samurai

Fredct – Sounds good. Do join the discussion.

And for the record, you aren’t being dscriminated against as a renter because renting is your choice, and it is the homeowner through property tax who pays for much of the community bills such as schooling. Making money on the other hand is different.

People can’t really help it that they make over $105,000, when the skills they built allow them the ability to do so. Nobody chooses NOT to make $105,000. People are price takers in that sense.

I’ll stop here. See ya later tonight!

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16 fredct

What if I was renting because I couldn’t afford homeownership? Certainly we’ve learned from the recent crisis that not everyone should or can be a homeowner. Or what if it’s because I’m in a situation where it made absolutely no sense to own? (say, short term job opportunity in a location) That doesn’t apply to me personally, but it absolutely does apply to some. Are they being discriminated against?

The fact is that every tax policy choice – as well as spending choice – makes *someone* better off and makes *someone* worse off. Is it *all* discrimination?

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17 Britt (Your Roth IRA)

Actually, the Roth IRA phase out limit for married couples filing jointly did change slightly. The new limit is $167,000 as opposed to $166,000. Just a minor change, but it is a difference between the 2010 Roth IRA rules and the 2009 Roth IRA rules.

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18 fredct

Good catch… so I guess the last 12 months did have slightly positive inflation.

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19 JWG

I am recently self-employed and would like to create a retirement plan with an aim to lower my taxable income. I’m looking at SEP-IRA, SIMPLE or Solo 401(K).

I’ve found information about each plan, but nowhere does it say whether there are maximum income levels that restrict how much, or any, of my contributions could be deducted from my earnings to reduce taxes. Can anyone point me in the right direction?

Thanks. JWG

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20 Craig

I can empathise with ‘Financial Samurai’. When you are young and usually make less money you have less options to invest for retirement outside of stocks, mutual funds etc. I remembered when I could contribute the max to my IRA and 401K each year, then the IRA limit kicked in then I was able to contribute to the ROTH IRA and now that is gone as well.

I was and did put away more money pre-tax 5 years ago than I do now. For the Roth in 2010 it’s full up to $105K and nothing above $120K. We should at least be able to put in the same amount into these accounts as those making below the threshold. I would like to put away an additional $5K into these accounts, which I could if I made a little less money.

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21 Ryan

Craig, this has been a topic of contention with many people for a long time. While many people think that $120,000 is a lot of money (and it is), the buying power of that money is significantly affected by location and many other factors. However, there are other investments you can make that can help you know or in the future. As Fred mentioned, there are still investment opportunities, even if you can’t participate in the Roth IRA.

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22 fredct

Craig, well for this year, you can put the money in a non-deductible Traditional IRA and then convert it to the Roth (the income limits on Roths have been removed for 2010). So, really, for now, you can do a back-door Roth contribution.

In general just remember that the rules are not preventing you from savings, just preventing you from getting the tax benefits. Continue to contribute as much as you can, just do it to a non-deductible IRA or even a plain old taxable account.

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23 Susan

Ryan,
I’m reading the Trad. IRA guidelines, above, which state:
“The phase out range for married filing jointly is between $89,000 and $109,000.”
We just figured out that our MAGI is a hair over $109K for 2009 and I’d contributed as normal to my IRA! YIKES. What happens now?
This is hard since I only work part time and the only retirement I have for “just me” is my IRA. What is a homemaker with part time work to do for personal retirement savings?
Thanks for your help.

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24 Ryan

Susan, your contributions can remain in the Traditional IRA, however, they will not count as a tax deduction for this year. You may be able to recharacterize your contributions as a Roth IRA, however, you wouldn’t get a tax deduction for the year. I recommend speaking with your IRA custodian or a tax professional for more information about your options and how to handle the paperwork. I hope it goes well!

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25 Ron

I made contributions to a traditional IRA for many years that were not deductible because of the income limits. If I transfer those funds to a Roth IRA, do I have to pay taxes on them again? I assume you have to pay taxes on any appreciation, but do I have to pay taxes on the principle?

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26 Ryan

Ron, based on my understanding, no, you wouldn’t have to pay taxes on the non-deductible Traditional IRA contributions themselves, but yes, you would have to pay taxes on any appreciation.

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27 fredct

Ron,

Your hunch is correct, and Ryan’s response is as well.

Here’s the link to publication 590 that explains it:
http://www.irs.gov/publications/p590/ch01.html#en_US_publink1000230812

Key quote:
“Partly taxable. If you made nondeductible contributions or rolled over any after-tax amounts to any of your traditional IRAs, you have a cost basis (investment in the contract) equal to the amount of those contributions. These nondeductible contributions are not taxed when they are distributed to you. They are a return of your investment in your IRA. “

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28 li

our MAGI is above the limit ($176000), is it ok to make non-deductible $5000 (each) contribution to traditional IRA for 2010, and then immediately convert them to Roth IRA? Could we use this back door strategy?

Do you recommend we open a new roth ira accounts for the conversion or just convert to existing roth ira accounts?

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29 Ryan

li, Yes, you can make a non-deductible Traditional IRA contribution, then roll it into a Roth IRA. If you do the Roth conversion before your non-deductible IRA earns any income then you won’t owe any taxes on the rollover. I recommend speaking with your brokerage firm or a financial/tax advisor for more details about the rollover and potential tax issues.

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30 Clint M

I am contemplating the Roth conversion in 2010. I have been told by my CPA that even if I only convert my non-deductible portion of my IRA, the total amount of all of my IRAs (Traditional, Non-deductible, and Simple) are looked at as one IRA and I will pay taxes on the percentage that was deductible of the amount converted.

For example, if I had $50K in a simple ira, $25K in a traditional (deductible) ira, and $25K in a non-deductible ira (assuming all contributions and no growth)–$100k total (75k deductile/25k non-deductible), then I choose to convert the $25K of the non-deductible portion only, I will still have to pay tax on 75% of my conversion. Is this correct?

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31 Ryan

Clint, that is my basic understanding, but I will defer to your CPA as he/she will have a much better understanding of your situation.

32 fredct

That is my understanding as well, yes.

33 paul

Does anyone know if after tax contributions to a company 401k plan are eligible to be rolled over into a Roth IRA?

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34 fredct

Well anything can be rolled into anything, so I suppose what you mean is can it be done without paying any taxes, and the answer is no.

‘Roth’ contributions (after tax in, no tax on gains either) are not the same things as ‘after tax’ contributions (after tax in, but gains are taxed).

If you were to take after tax money out, then you would also have to take out any associated gains, and those gains would be taxed, even if rolled over.

I’m not sure exactly how the gains would be calculated, but I am sure the IRS will have a fixed formula with it, and likely it would not work out too favorably.

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35 Sam

Ryan,

For those married filing jointly with MAGI below 167,000 and one spouse covered by employer 401K, do they still qualify for Roth/Traditional IRA?

My understanding is the spouse (Spouse A) covered by 401K won’t be eligible for Traditional IRA. Let us call the other one as Spouse B.
1. Will Spouse B be eligible for Roth or Traditional?
2. Is Spouse A eligible for Roth?
3. Is the contribution limit capped at 5000 for both together (below 5K), or can they contribute up to 5K for each?

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36 fredct

Question 0 (Spouse A not eligible for Traditional IRA): Well, Spouse A isn’t eligible for a *deduction*. They could make a non-deductible contribution though, if they so chose.

1. According to Table 1-3 at the link below, Spouse B would be eligible for a full deduction for a Traditional IRA (ever so barely) – http://www.irs.gov/publications/p590/ch01.html#en_US_2010_publink1000230467

2. According to Table 2-1 at the link below, Spouse A (and Spouse B) could make full Roth contributions (again, ever so barely) – http://www.irs.gov/publications/p590/ch02.html#en_US_2010_publink1000230977
Given this fact, my comment under “Question 0? that Spouse could make a non-deductible Trad IRA contribution is effectively moot.

3. Each person can contribute a total of $5K to whatever mix of Traditional & Roth. So Spouse A could contribute $5K to a Roth *or* $5K to a Traditional *or* $2K to a Roth plus $3K to a Traditional, etc.. But Spouse A’s total cannot exceed $5K (unless they’re over 50, when they cannot exceed $6K total).

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37 Sam

My tax professional said we don’t qualify for IRA, and the tax has been filed. My guess is they are going by table 1-2 at http://www.irs.gov/publications/p590/ch01.html#en_US_2010_publink1000230467

Our MAGI is well below $167K, but more than $109K, with one of us covered by 401k plan.

Given this, I am thinking about going down the Roth IRA path for both, with $5k for each.

1. Since there is no tax effect in the current filing year, when Roth IRA is used do we still need to include anything as part of tax returns?

2. Could I still go ahead and fund the Roth IRA’s before the April 15th deadline?

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38 fredct

Table 1-2 does indicate that the person covered by the 401k at work would not qualify for a Traditional IRA deduction. Many people would say that person therefore “does not qualify for a Traditional IRA”, although that’s actually not officially correct, it’s just that you don’t quality for the deduction. You could still contribute, you just won’t get a deduction for it.

1. When Can You Make Contributions?
You can make contributions to a Roth IRA for a year at any time during the year or by the due date of your return for that year (not including extensions).
Source: http://www.irs.gov/publications/p590/ch02.html#en_US_2010_publink1000231022

So it says by the due date, it says nothing about “or the date you file taxes”. So it appears to me the answer is yet. Two things to watch for though:

a. for some people with lower incomes, if you qualify for the retirement savers credit, you would want to file an amended return to get that credit.

b. make sure that you qualify for the full contribution. Fill out worksheets 2-1 and 2-2 on the same link as above. You don’t want to have a MAGI of $167,100, yet contribute the full $5K, and end up having to pay penalties later (and remember MAGI is not exactly the same as AGI). The nice thing about doing it via your tax software would be it would do the calculation for you. If you’re doing it afterwards, make sure you know what you qualify for if you’re close to the limit.

39 Cindi

Hi! After filing my taxes this year and seeing that my Adjusted Gross Income is less than last year(although I made about $1000 more), I suspect that I may have paid taxes on my IRA account last year. I don’t remember the prompting from last year’s free tax software. Is there any way I can do anything about it now? I contributed about $4000 to the IRA, if that helps. Is it even worthwhile to pursue?
Thanx!
Cindi

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40 Ryan

Cindi, your best option is to go over last year’s tax return and see if you paid any money on your taxes. If you don’t know how to review your tax return, then I recommend contacting an accountant to help you with it. It wouldn’t cost much money (some may even help you over the phone for free), and yes, it is absolutely worth it.

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41 Kevin M

Cindi–you should be able to file a 1040X to correct the problem. It’s a pretty simple process, and your accountant should be able to do it with little trouble, especially if he or she prepared the original return. If so, all the information necessary is in their tax program, and they just have to change a couple of numbers.

The same should be done for your state return.

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42 sheri gregory

If I want to take money out of my Roth IRA to purchase a home, how do I go about it? Is there any penalty & taxes that I would have to pay? I’ve had this since 1996

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43 Britt (Your Roth IRA)

One other thing to note in regard to this year’s Roth IRA income limits. One thing that hasn’t changed is that there continues to be no income cap for those who wish to make a Roth IRA conversion. Prior to 2010, anyone earning more than $100,000 was prohibited from converting a 401k or Traditional IRA to a Roth. But that limit disappeared in 2010 and has not been reinstituted.

So if you earn too much to make a direct Roth IRA contribution, it may be possible to make non-deductible Traditional IRA contributions (which have no income cap), then convert your Traditional IRA to a Roth IRA. This effectively mimicks the same act as a Roth IRA contribution. However, if you already have a Traditional IRA with tax-deductible contributions, this will not be as simple. Either way, talk to a financial professional who can guide you through the process!

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44 Andre N

Hi!
if one falls in the phase out zone for a Roth IRA; say 116k and makes a 3k Roth Contribution for 2012, can an addtional 2k non-deductible contribution be made to a Traditional IRA to bring the total for both IRA accounts to 5k?
If doing a rollover from a Traditional to Roth IRA can this be done annually if the loophole remains open?

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45 Fred

Yes, it’s called recharacterizing (basically its a rollover):
http://www.irs.gov/publications/p590/ch01.html#en_US_2011_publink1000230671

Here’s the section about excess contributions:
http://www.irs.gov/publications/p590/ch02.html#en_US_2011_publink1000231024

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46 Tom

Not a fan of the phase out of IRA tax deduction between 60 and 70k … not that much money in this day and age…!

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47 Kalen

I think it could easily remain at the $5,500 mark for a while, maybe even longer than it was at $5000, but if that’s the limit we may as well max it out EVERY YEAR! Remember, it’s $5,500 per spouse. I think people (I always used to) get it in their mind that the limit is for a household and they don’t take full advantage of the IRA if they are both working. Max it out! Thanks for the great article!

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48 Bryce @ Save and Conquer

Even if you make more than the allowable limits for Roth IRA contributions, as long as you do not have other tax-deferred IRA accounts, you can make a backdoor Roth conversion by using taxed money to purchase the limit in a traditional IRA and then convert it to a Roth. You have to be careful if you have other tax-deferred IRAs, though, as they are used to determine taxes paid when you convert to a Roth. You could get taxed twice on the money you put into the traditional IRA with the intention to convert.

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49 Ryan Guina

Great point, Bryce. This is easiest if you only have non-deductible Traditional IRAs. You still have to pay taxes on the earnings when you convert, but you don’t have to pay taxes on the contributions (again, only if they were originally made as non-deductible Traditional IRAs).

But if you have a mix of tax-deferred and non-deductible Traditional IRAs, then you might want to meet with a tax professional or investment planner to understand the tax implications. It can be worth it for some people, but it may create too much of a tax burden for others. Definitely research before taking the leap!

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50 Sharon Simpsol

I wish to convert my IRA to a Roth IRA . I realize I will have to pay taxes on the difference between my basis (my contributions over the years). It is my theory that I have about the same amount as I’ve contributed because of massive losses when the tech bubble burst and when the housing bubble burst and other corrections. Your schedule is nice, however I need to go back to when the IRAs first became deductible sometime in the early 70s. The IRS is of no help – I have spent at least nine hours on the phone in three hours trying to navigate their website to determine the amounts I have contributed. Can you do a schedule all the way back to beginning? I remember that the years I did not work but had a working spouse all like to contribute was $250 per year. So I reviewed my social security earnings statement and ballparked back to 1973 (?) To when I think they began and my contributions were $2000 (?). I have been working and paying taxes since 1966. There are probably other people in my situation because of losses and bad investments and fees taken out etc. Hopefully you can help me and I am thanking you in advance for your attention to this matter. SS

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51 Ryan Guina

Hello Sharon, a Roth IRA rollover isn’t based on how much you contributed to your Traditional IRA; it is based on the present value of the IRA. You would be required to pay taxes on the amount you convert into a Roth IRA. It can be a little more difficult to determine how much of the conversion is considered taxable income if you only convert a portion of your IRA. Here is an article on how to do a Roth IRA Conversion.

My recommendation is to speak with a tax professional. He or she will be able to help you do the Roth IRA conversion so that it meets the IRS guidelines, and help you determine how much of your funds will be considered taxable income. Best of luck!

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52 Fred

Normally Ryan is correct. For a traditional IRA you pay taxes on the entire value. This is because your contributions were originally pre-tax (aka: tax deductible), so to mice it to a post-tax account is an entirely taxable event.

The only exception is if you made *non-deductible* contributions to that account. But based on your statement that “I need to go back to when the IRAs first became deductible sometime in the early 70s” , it makes it seem like all your contributions were deductible.

Even if not and you were making non-deductible contributions, you have to weigh the time and effort (and perhaps realistic impossibility) of establishing your cost basis, and just claim zero anyway. $2000 invested in 1973 in the S&P 500 would be worth over $110K as of the end of 2013. With the markets at all time highs, unless you were invested primarily in Enron, WorldCom, and Pets.com, it’s highly unlikely that your account established in the 70s doesn’t have a substantial gain.

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53 Ryan Guina

Great point, Fred, thanks for mentioning that. Having a portion of nondeductible IRAs would change the conversion process. At this point, I think it’s a great idea to gather what records you have and speak with a tax professional to make sure you aren’t missing anything. A little up front cost is much better than making a mistake and getting penalized by the IRS, or worse, missing out on tax advantages you might have been able to receive, but missed due to a simple error.

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