Roth IRA contribution limits are a timely topic as April 15 - Tax Day - approaches on the calendar.

No doubt, Roth IRA plans are a valuable tool for Americans looking to curb Uncle Sam's tax bite once they start withdrawing retirement funds.

Roth IRA Contribution Limits

For the 2018 calendar tax year, Roth IRA contributions are capped at $5,500, with an additional $1,000 "catch-up" provision for Americans aged 50 and older. The contribution cap rises to $6,000 - plus an extra $1,000 for tax filers over 50 - for the 2019 tax year, according to the Internal Revenue Service. There are certain income eligibility limits for these amounts (see below.)

Created as part of the Taxpayer Relief Act of 1997, the Roth IRA (named after U.S. Senator William V. Roth Jr. of Delaware) enables taxpayers to stash away already-taxed income and withdraw it tax-free once they reached retirement age.

There are big differences between Roth IRAs and traditional IRA plans. Unlike basic IRAs, Roth IRA plans are not tax-deductible. Yet also unlike traditional IRA plans, Roth IRAs aren't taxed upon withdrawal once the account holder reaches retirement age, defined as age 59½, as long as you've held the Roth plan for five years, and the investments can grow tax-free.

Retirement savers can open a Roth IRA at any brokerage firm, choose the investments and funds you want to hold and grow your plan money - choices include a wide variety of stocks, bonds, mutual funds, and exchange-traded funds.

Roth IRA Advantages

  • Pass-along privileges: Unlike primary IRA plans or 401(k) plans, Roth IRA users aren't subject to required minimum distributions starting at age 70½. That's a big plus for Roth account holders - it means you can pass on plan proceeds to your loved ones.
  • Non-taxable at retirement age: A big benefit of Roth IRAs is that you can make withdrawals at retirement age tax-free, and the investments can grow tax-free.
  • Help for college: If you want to use Roth IRA plan funds to pay for a family member's qualified college costs (like tuition, room and board, books and computers, for example), you can do so without incurring any early withdrawal penalties. That rule comes in handy if you're struggling with soaring college costs.
  • Sufficient contribution time period: Roth IRA users can contribute to plan funds from Jan. 1 to the tax filing deadline, April 15 in 2019.
  • Extra retirement savings: Roth users can contribute to a retirement plan even if they're already contributing to an employer-based retirement plan.

Roth IRA Drawbacks

  • They're taxed at the contribution level: You don't get a tax deduction on Roth IRA contributions. 
  • Limits on eligibility: Roth IRAs do have eligibility limits, and you can only contribute to a Roth IRA plan under the following income guidelines (for 2018):
    • As a single tax filer, you earn $135,000 or less annually, with a reduced contribution limit if you make more than $122,000.
    • As a married couple, your combined income is $199,000 annually or less, with a reduced contribution limit if you make more than $189,000.
    • For the 2019 tax year, the IRS has raised those eligibility income limits to $137,000 and $203,000, annually, with reduced limits on incomes over $122,000 and $193,000.
  • Lower contribution limits, compared to 401(k) plans: At a $5,500 plan contribution limit, Roth IRAs don't compete with 401(k) plan contribution limits, which stand at $19,000 in 2019, plus a $6,000 catch-up contribution limit, compared to $1,000 for Roth IRAs.

Facts About Roth IRA Contribution Limits

There are some additional "need to know" facts about Roth IRA plan holders, mostly to their benefit.

  • No significant age threshold: As long as you're under age 70½, you can contribute to a Roth IRA path. That means even a 16-year-old mowing lawns or busing tables at a local diner can contribute to a Roth IRA - and so can a 68-year-old working at a part-time job in retirement.
  • You can contribute to both a Roth IRA and traditional IRA: There's no rule that says you can't contribute to both a Roth IRA and a traditional IRA. Many Americans can and do contribute to both - and you can, too. The only caveat is that you're still subject to contribution caps for the 2018 tax year - $5,500 for all Americans and the $1,000 add-on for Americans older than 50.
  • You can leverage your tax refund to contribute to a Roth IRA: The IRS allows taxpayers to steer a portion or the full amount of their tax refund into their Roth IRA. Just make sure you file your taxes on time, and that you alert your IRA plan custodian (usually your investment firm) to apply your tax refund into your Roth IRA account. A bonus - the IRS also allows you to take a tax refund from 2018 and apply it to your 2019 Roth IRA plan as a contribution.
  • No need to include your IRA on tax returns: While you don't have to list your Roth IRA plan contributions on your tax returns, it's still a good idea to monitor your contributions, in the event you'll need to prove to Uncle Sam that you've held your Roth IRA plan for five years, so you'll be eligible to take out plan distributions. Your Roth IRA plan provider will help you track your Roth IRA plan contributions, using Form 5498 (IRA Contributions.) Keep the form and store it away safely as proof of your year-to-year plan contribution amounts.
  • Don't contribute too much: You can incur a 6% tax penalty annually if you contribute too much money to a Roth IRA plan. Pay attention to the plan caps, and if you do contribute too much, bypass the penalty by deducting the overage amount from your Roth account before you file tax returns. You can also carry the overage amount over into the next tax year, as long as you notify the IRS.

The Takeaway

There's no need to be confused by Roth IRA contribution limits, for the 2018 tax year and beyond.

Use the following bullet points as a guideline:

  • Know the eligibility guidelines. For 2018, you can't earn more than $135,000 (as a single tax filer) or $199,000 (for a married couple) and be able to contribute to a Roth IRA.
  • Know your contribution limits. Your maximum annual Roth IRA contribution for 2018 is $5,500, plus an extra $1,000 for tax filers 50-and-older. The limit rises to $6,000, plus an extra $1,000 for tax filers over 50 for the 2019 tax year.
  • Know your contribution deadlines. Roth IRA users can contribute to their plan account up to, and including, April 15, 2019.

The IRS has all the rules for Roth IRAs in Publication 590-B.

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