| Rules for Making Roth IRA
Contributions - Contribution Limits & Effects on Roth Conversions
(August 22nd)
Most American employees who have a pay check
can contribute to a Roth IRA; even those people who aren't eligible
to convert a traditional IRA to a Roth IRA can contribute to a Roth
IRA. Here are the basic rules for contributing to a Roth IRA, as
well as their pros/cons.
 i)
No age limit: In traditional IRAs, people who turn
70 and ½ years old can no longer contribute to their traditional
IRAs. This is not the case for Roth IRA; an investor contributing
to a Roth IRA can do it for a lifetime! Thus, if you would like
to set up a Roth IRA at 82 years of age and save for your retirement,
you can still do it with Roth IRAs!
ii) No Employer Plans: A person
can only contribute to a 401(k) if his/her employer offers an employer
sponsored 401k plan. This is not the case with Roth IRAs. You can
set up and contribute to a Roth IRA even if you have no employer
that provides /administers this plan. Furthermore, you can contribute
to a Roth IRA even if you already contribute to a 401(k) plan. What’s
more, your contributions to a Roth 401(k) also do not affect your
contribution eligibility to Roth IRAs! Such is the kind of freedom
you get when saving for retirement with a Roth IRA!
iii) No Effects on Conversions: You
can make Roth IRA conversions and separate contributions at the
same time or different times in a single year without any repercussions.
Thus in other words, you can contribute to a Roth IRA, and do a
conversion of the Roth IRA in the same year.
Roth IRA Contribution Limits
For the years 2008, 2009, 2010 and 2011, the contribution
limit for Roth IRAs is $5000 for people under 50, and $6,000 for
people 50 years and above. The $1000 difference is due to additional
‘catch up’ contributions that people over 50 years can
make. Below is the table outlining Roth IRA contribution limits
since 1998 up to 2011.
|
49
Years & Below |
50
Years and Above |
| 1998 |
$2,000 |
$2,000 |
| 1999 |
$2,000 |
$2,000 |
| 2000 |
$2,000 |
$2,000 |
| 2001 |
$2,000 |
$2,000 |
| 2002 |
$3,000 |
$3,500 |
| 2003 |
$3,000 |
$3,500 |
| 2004 |
$3,000 |
$3,500 |
| 2005 |
$4,000 |
$4,500 |
| 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 |
| 2011 |
$5,000 |
$6,000 |
*Note that people aged 50 years and above can make additional contributions
known as ‘catch up’ contributions to help them save
for a retirement nest egg faster.
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