The Adjusted Gross for an IRA Calculation

by Jane Meggitt

Contributions to Roth individual retirement accounts (IRAs) are limited by the adjusted gross income (AGI) of the taxpayer, whether filing singly or jointly on the federal tax return. Those contributing to traditional IRAs who are covered by employer-sponsored retirement plans must also calculate the AGI to determine if all or part of the IRA contribution is tax deductible. The Internal Revenue Service may adjust the permissible AGI for either type of IRA each year.

Roth IRA AGI

Roth IRA contributions are made with after-tax dollars. Only those with AGIs below a specified amount may open Roth IRAs. For 2011, the Roth IRA AGI limit for single filers is $107,000 in order to make a full contribution, and between $107,000 and $122,000 for partial contribution eligibility. Single filers with an AGI over $122,000 are ineligible. For married couples filing jointly, the AGI limit is $169,000 for full contributions, and between $169,000 and $179,000 for partial contributions. Married couples with an AGI exceeding $179,000 are ineligible.

Traditional IRA AGI

Traditional IRAs are tax-deferred. Anyone may contribute to a traditional IRA, but only those meeting certain AGI criteria may deduct contributions. However, those not covered by any employer-sponsored retirement plan may take the full deduction. Even those covered by an employer-sponsored retirement plan may take the deduction if meeting AGI limitations. For 2011, single filers with an AGI of $56,000 or less may take the full deduction. Partial deductions are available for those with an AGI of up to $66,000. Above that AGI, no deduction is allowed. Married taxpayers filing jointly, with both spouses covered by an employer-sponsored retirement plan, may take a full deduction if the AGI is $90,000 or less. Those filing jointly who make up to $110,000 may take a partial deduction, but if the AGI is higher no deduction is allowed.

Contributions

For both Roth and traditional IRAs, the 2011 contribution limit is $5,000 for those under age 50 and $6,000 for those 50 and over, assuming at least that amount is earned as compensation. While contributions to traditional IRAs cannot be made once the account owner reaches age 70 1/2, there is no such restriction on Roth IRAs as long as the account owner earns income.

Withdrawals

The minimum age for withdrawals without penalty from both traditional and Roth IRAs is 59 1/2. Traditional IRA regulations require mandatory withdrawals by the age of 70 1/2. Withdrawals from traditional IRAs are taxed as ordinary income. Roth IRA withdrawals are tax-free, and there is no mandatory withdrawal age. For this reason, Roth IRAs are often used as estate-planning vehicles.

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