It is a brand new year which can only mean one thing – it’s time to start tax planning for 2010! That’s right – the Roth IRA contribution limits have been released for 2010 and it is never too early to get this information.
As expected the 2010 Roth IRA limits have not been changed from the 2009 Roth IRA limits which is good and bad. It is bad because the contribution limits didn’t increase but it’s also convenient since if you know the 2009 limits then you also know the 2010 limits.
If you thinking about buying tax preparation software then consider software programs such as TurboTax, H&R Block at Home (formerly TaxCut) or QuickTax (for Canadians).
This article covers all the contribution limits and rules for Roth IRA. This retirement account is a very useful retirement tools since you don’t pay any taxes while the money is in the account or upon withdrawal so there isn’t any uncertainty about tax rates when you are retired. The contribution limits are much less than the 401(k) plan but it’s good to diversify your retirement savings into pre-tax accounts (401k) and after-tax accounts (Roth IRA).
Here are the limits for 2010 and previous years:
| Year | Under 50 | Over 50 |
|---|---|---|
| 2006 | $4,000 | $5,000 |
| 2007 | $4,000 | $5,000 |
| 2008 | $5,000 | $6,000 |
| 2009 | $5,000 | $6,000 |
| 2010 | $5,000 | $6,000 |
The “over 50″ rule is applied to allow older people to “catch up” on their contributions. Sometimes people find themselves just around the corner from retirement with little or no savings. Having a different contribution category for those folks is a way to allow them to salvage a decent retirement.
Roth IRA income phase out ranges
Year Status Floor Ceiling
2009 Single $105,000 $121,000
2009 Married (Joint filing) $166,000 $176,000
2010 Single $105,000 $120,000
2010 Married (Joint filing) $167,000 $177,000
The phase outs are graduated which means that if you make less than the bottom end of the range then you get the full contribution room ($5,000 or $6,000).
you make more than the high end of the range then your contribution room is zero. If your income is somewhere inside the range then you will only get part of the maximum contribution room. See this post – 2009 Roth IRA contribution limits for a detailed example of how the phase-out works.
Roth IRA rules
All Roth IRA contribution room has to be used by Apr 15 of the following tax year. The contribution room cannot be carried forward indefinitely. Any contributions made between January 1st and April 15th in 2010 can be designated either 2009 or 2010 so you have your choice as to which tax year to apply the contribution to. Generally speaking applying to the previous tax year makes sense since that gives you more opportunity to use the current tax year contribution room later on in the year.
The Roth IRA contribution limit applies to all Roth IRA accounts you own as well as any other type of IRA accounts such as Traditional Roth account.
More information
2009 Roth IRA contribution limits and phase out numbers.
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