A Roth IRA is a such a good thing, there are restrictions of having too much of it. That is, there is a limit to how much you can put away in a Roth IRA each year. The maximum contribution limits (or contribution maximums) adjust for inflation over time, typically every year or two. In 2014, Roth IRAs contribution limits stayed where they were in the prior year, but the income limits and phase-out range did change slightly.
Roth IRA Contribution Limits 2014
Just as in 2013, the Roth IRA contribution limit for 2014 is $5,500.
2014 Roth IRA Catch-Up Contribution Limits
People older than age 50 get an increased Roth IRA limit. If you are in that group you can add an extra $1,000 to your 2014 contribution. It's called a catch-up contribution, and it's incentive for retirement savers to put away more in the years leading up to retirement.
Roth IRA Basics
If you are new to the world of Roth IRAs, prepare to be excited about what they have to offer individual savers. Similar to traditional IRAs, Roth IRAs are investment vehicles. The money you put into a Roth is invested—you have a wide range of investments to choose from, including mutual funds, stocks, bonds, and pretty much anything else on the open market. While contributions to a regular IRA grow tax-deferred until you the funds are taken out at retirement age, Roth IRA contributions are made after tax and not usually taxed again. You will pay a tax on gains you withdraw before retirement, and you could be hit with a withdrawal penalty. But if you withdraw contributions, you may be able to do so without paying tax, even before retirement age. (Learn more about the complex rules for Roth IRA withdrawals.)
Although a Roth IRA is a retirement account, it's really ideal for younger investors—or anyone who expects their tax rate to rise over time (along with their income, or just because taxes are historically quite low today.) With a Roth, you pay taxes on your money now and never again, even if it quadruples, you generally pay no additional tax. If you expect your tax rate to increase over time, a Roth IRA is a smart idea. You pay taxes on the money at today's rate, and will not be taxed in the future when your income tax rate is likely to be higher.
2014 Roth IRA Eligibility
Higher-income individuals are not eligible to save in a Roth IRA. You can contribute the maximum to a Roth IRA if your income is $114,000 or less. Roth contribution amounts start to phase out for adjusted gross incomes between $114,000 and $129,000 for single or head of household taxpayers in 2014 (up from $112,000 and $127,000 in 2013). If you make more than $129,000 in 2014, you will not likely be eligible.
The income limits are different if you are married and filing jointly. Married couples can make a full contribution to a Roth IRA if your combined adjusted gross income is $181,000 or less. You are not eligible for a Roth if your AGI is more than $191,000. Contribution limits for a Roth IRA phase out between $181,000 and $191,000 in 2014, up slightly from $178,000 and $188,00 in 2013.
Contribution Limits for Other Types of IRAs in 2014
Limits remain unchanged from 2013 for traditional IRAs as well. The 2014 IRA limits are $5,500 for people under 50, and $6,500 with the catch-up contribution for those 50 and older.
If you have your own business, you may be a regular contributor to a self-employed IRA, such as a SEP IRA or SIMPLE IRA. SEP IRA investors can contribute up to 25% of annual gross income, up to $260,000 (or a $52,000 contribution) in 2014. SIMPLE IRA contributors can put in $12,000 in 2014. The catch-up contribution for SIMPLE IRAs is $2,500 in 2014.
The content on this site is provided for information and discussion purposes only. It is not intended to be professional financial advice and should not be the sole basis for your investment or tax planning decisions. Under no circumstances does this information represent a recommendation to buy or sell securities.