Roth IRA Contribution Limits in 2020 and 2021

The federal government has set limits on both income and contributions. The only requirement, or eligibility rule, for contributing to a Roth IRA is paid compensation. This can be in the form of wages, salaries, tips, professional fees, and even bonuses.

Compensation is the only qualifying rule for Roth IRAs. Unlike Traditional IRAs, an individual can be of any age and still make a contribution at any time for a given calendar year up until the due date of their return. This means that if someone wants to make a Roth IRA contribution for 2021, they can make it anytime between January 1, 2021 and April 15, 2022.

Another nice feature of the Roth IRA is that a spouse can also qualify for a contribution; even if a spouse has little or no compensation, as long as the couple files a joint tax return.

As mentioned earlier, the first contribution limit we're going to talk about has to do with compensation. To be eligible for a Roth IRA contribution in a given calendar year, the accountholder needs some form of compensation; but there is also an income limit. If a taxpayer's modified adjusted gross income exceeds these limits, they are no longer eligible to contribute to a Roth IRA.

This calculation is normally performed when someone completes their federal income return on Form 1040, which is sent to the IRS. Anyone unfamiliar with their AGI can pull out last year's form and look for the reference to AGI, which is normally line 36.

The income or compensation eligibility limits, as stated by AGI, for Roth IRAs for the years 2020 and 2021 appear in the table below:

Taxpayers with a filing status of Married Filing Separately (and living with their spouse), cannot make a Roth IRA contribution if their modified AGI is in excess of $10,000.

The second limit that applies to Roth IRAs has to do with the contribution someone can make in a single tax year. The exact number really depends on two factors. If the accountholder is age 50 or older by the end of the calendar year, then it's possible to make an additional catch-up contribution.

The second factor that can affect the level of funding has to do with whether or not a reduced contribution applies because of the income limitation previously mentioned. The current contribution limits for Roth IRAs appear in the table below:

Roth Contribution Example

Here's an example demonstrating how this table works. In the tax year 2021, individuals eligible for a full contribution to a Roth IRA can place up to $6,000 in their account. But if that individual is age 50 or older by the end of the calendar year, then they can contribute $6,000 plus $1,000 or $7,000 in 2021.

Note: New limits are published in mid to late October.

All Roth IRA contributions are made on an after-tax basis, and therefore not tax deductible. However, the benefit of this arrangement is that all withdrawals from the account are tax-free.

Normally, an accountholder can gain access to the money in their Roth IRA through what are called qualified distributions or withdrawals. A qualified distribution is one that happens five years after they first started to contribute to a Roth IRA and they've reached age 59 1/2.

The purpose of a Roth IRA is to put money aside for retirement. Early withdrawals, or distributions, from a Roth IRA are normally subject to a 10% additional tax penalty. There are some exceptions including disabilities, first time home ownership, and the payment of higher education costs. For more information on this topic, please see our detailed article on IRA Withdrawals.