Who Can Contribute to a Roth IRA?

Most people will be able to contribute to a Roth, but once your income hits certain limits, you may need to find another way. Many people use Roth IRAs to make after-tax retirement contributions that will not be taxable upon withdrawal.

If you have earned income under certain income limits, you can fund a Roth for yourself and even for a non-working spouse. Roth IRAs cannot be opened by everyone: the income limits are based on your modified adjusted gross income (MAGI) and marital status.

For example, as of 2016, if you are married and filing jointly, your adjusted gross income must be under $194,000 in order to open a Roth IRA, but there is a phase-out which limits your contributions if your household income is over $184,000. An individual cannot have a gross income exceeding $132,000, and there is a phase-out which starts at $117,000.

You didn’t hear it from us, but for individuals who have incomes over the limits, they may have the option of funding a Roth via a “back door.”

‘Back Door Roths’ became popular in the last few years when accommodative legislation was approved. The new rules basically mean you can open up a conduit IRA, fund it with after-tax dollars, not take any deductions on it, and transfer those assets over to a Roth account.

This all can be done regardless of your income.

It may not be a good option if you already have funds invested in pretax IRAs, because the IRS will expect taxes to be paid on these funds first if you’re converting funds to a Roth.

Which brings up another way to back-door a Roth - actually converting an entire Traditional IRA to a Roth, and paying taxes on the balance of the IRA account. It is uncertain how long back-door Roths will be permitted.