When Tammy opened her account, her eligibility was based on what her current income is. She was told that there are strict guidelines that must be met. These will be discussed later in the article. She was told that, currently, the maximum allowable contribution to a Roth IRA account is $5,000 per year. This amount is for anyone who is under the age of 50. Seeing as Tammy is 37, she will be allowed to contribute up to $5,000. Now, if Tammy was over the age of 50, she would have been allowed a catch-up amount of $1,000. This is in addition to the standard $5,000 limit. Therefore, if Tammy was 50 or older, she would have been allowed to contribute up to $6,000 in her Roth IRA retirement plan each year.

As mentioned previously, each year, the cost of living and inflation is taken into consideration. Often times, these will result in an increase of the allowable contribution. However, there is another factor that could actually decrease what you can contribute to a Roth IRA. Tammy's earned income could have a huge impact on whether she can contribute to the IRA. First of all, one of the eligibility requirements to even open a Roth IRA is that you must have a source of earned income. Tammy is employed and is eligible to contribute to a Roth IRA. The IRS will then take the amount of her income and determine whether she is eligible based on the income limits.

These IRA limits regarding income will vary depending on Tammy's tax filing status. Currently, under Roth IRA rules, if her tax status is married filing joint or if she is a widow(er), her income limit is $169,000. This is the maximum amount she could have made in 2008 to continue contributing to her Roth IRA in 2009. Next year, that amount is due to be increased to $176,000. Now, if Tammy is single, her income cannot exceed $116,000 for 2008 and $120,000 for 2009. What does this mean? Basically, she can only earn up to the stated amount to be able to contribute the maximum amount into her Roth IRA.

If she exceeds the set limits, you will enter a phase-out period. This is when the allowable contribution amount begins to decrease, based on your earnings. It is possible for you to completely lose the ability to contribute altogether if your income is too high. Tammy does file her taxes with the single status, so her income limit will be $116,000. Currently, Tammy earns $74,000 each year, so she is well within the allowable limits for income. However, if Tammy were to get a new job that paid her $120,000 per year, the amount she will be able to contribute to her Roth IRA will begin to decrease because she has exceeded the income limits.

In short, the answer to, "how much can I contribute to a Roth IRA?" will depend on all of these factors. As long as Tammy continues to meet the requirements and stay beneath the income limit, she will be allowed to contribute up to $5,000 a year. If she was over 50, she would be allowed the extra catch-up amount of $1,000. Now, this does not mean she must contribute this much to her account, but she is not allowed to go over the contribution limits. Tammy has been dealing with her financial advisor and he has informed her that it is to her benefit to contribute as much as she possible can each year. This is the best way Tammy can prepare for retirement later in life.

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