How Your Roth IRA Contribution Limit Is Calculated

The primary factors for determining your contribution limit are your filing status and modified adjusted gross income (modified AGI). Based on these two factors, you may either be eligible for the max, a reduced amount, or not eligible at all.

Contributions to a Roth account are made post-tax, but all earnings grow tax-free. Withdrawals of the contributions made during retirement are made tax-free. However, only earned income can be contributed to a Roth IRA.

Also, contributions to Roth IRAs are limited and can be reduced or phased out, depending on your annual income. The table below highlights the maximum amount of income that you can earn before being ineligible to contribute to a Roth, and the income phase-out ranges where your contributions are reduced. 

2020 and 2021 Roth IRA Income Limits
Filing Status 2020 Modified AGI 2021 Modified AGI Contribution Limit
Married filing jointly or qualifying widow(er) Less than $196,000 Less than $198,000 $6,000 ($7,000 if you're age 50 or older)
  $196,000 to $205,999 $198,000 to $207,999 Reduced
  $206,000 or more $208,000 or more  Not eligible 
Single, head of household, or married filing separately (and you didn't live with your spouse at any time during the year) Less than $124,000 $125,000 $6,000 ($7,000 if you're age 50 or older)
  $124,000 to $138,999 $125,000 to $139,999 Reduced
  $139,000 or more $140,000 or more Not eligible 
Married filing separately (if you lived with your spouse at any time during the year) Less than $10,000 Less than $10,000 Reduced
  $10,000 or more $10,000 or more Not eligible

Example of How a Reduced Limit Is Calculated

Below is an example of how the reduced limit is calculated for someone who is filing as single, head of household, or married and filing separately (and you didn't live with your spouse at any time during the year).

  1. Start with your modified 2020 AGI.
  2. Subtract $124,000 (based on tax filing status).
  3. Divide the result by $15,000.
  4. Multiply by your maximum contribution limit.
  5. Subtract the result of #4 from the maximum contribution limit.

Please note that the divisor (in step #3) of $15,000 is set by the IRS, depending on your tax filing status. If your return is filed as married filing jointly or as a widower, you will use $10,000 as the divisor.

Example Scenario
Filing Status Single
Modified AGI $127,000
Age 49
  1. 2020 AGI: $127,000
  2. $127,000 - $124,000 = $3,000
  3. $3000 / $15,000 = 0.2
  4. 0.2 * $6,000 = $1,200
  5. $6,000 - $1,200 = $4,800

Using the example information above, the calculated reduced limit would be $4,800.

Details of Roth IRA Contributions

The Roth IRA has contribution limits, which are $6,000 for 2020 and 2021. If you’re 50 years or older, then you can contribute $7,000 for 2020 and 2021. Contributions, not earnings, can be withdrawn tax-free at any time. 

It’s worth noting that an investor can have both a Roth and traditional IRA and contribute to both, but the contribution limits apply across all IRA accounts. For example, if an investor contributes $4,000 to a Roth IRA, that same investor could contribute $2,000 to their traditional IRA in that same year. If that taxpayer is age 50 or older, they would have an additional $1,000 to contribute.

Age Contributions Limits  

There is no age limit for making contributions to an IRA account. First, there has never been an age limit on Roth IRAs, but traditional IRA contributions had an age limit of 70½. However, that limit was removed with the passage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. 

With a traditional IRA, your ability to participate in a qualified retirement plan, such as a 401(k), will dictate if and how much you can contribute to the IRA. With a Roth IRA, participation in a qualified retirement plan has no bearing. 

Roth IRA Contributions and Low-Income

Roth IRA contributions are not tax-deductible. They are made with after-tax dollars. However, lower- and moderate-income taxpayers may qualify for the Saver’s Credit.

This tax break allows for a tax credit of between 10% and 50% for the amount contributed to a Roth IRA. Depending on the filing status, adjusted gross income (AGI), and Roth IRA contribution, the credit can be up to $2,000. 

For the tax year 2020, the top-end income limits are $65,000 for those married filing jointly, $48,750 for head-of-household filers, and $32,500 for single taxpayers. 

Withdrawals and the CARES Act 

The passage of the CARES Act in March 2020 allows for the withdrawal of up to $100,000 from Roth or traditional IRAs without having to pay the 10% early withdrawal fee. 

This hardship withdrawal is allowed for those economically affected by the pandemic. The account holder has three years to pay taxes owed on withdrawals, versus having to pay it in the current year. As well, the withdrawals can be repaid and no taxes owed. The repayment amount doesn’t count toward the contribution limit.