Income Is Important When Choosing between Roth or Traditional IRA

Choosing between a Roth IRA or traditional IRA can be challenging depending on your situation. One important variable that you should look at is the amount of income that you make. Here are the basics of how your income amount can affect which IRA you should choose. 

Income Restrictions

For the traditional IRA, there are no income restrictions. Therefore, anyone should be able to start an IRA if they want one. IRAs are excellent retirement savings tools that have important tax savings that can really benefit you.

Roth IRAs have a few income restrictions that you should be aware of:

  • If you are single you have to make less than $105,000 in order to be able to contribute fully to Roth IRA. This means that you can contribute $5000 per year or $6000 if you are over the age of 50.
  • If you make between $105,000 and $120,000 then you can make a partial contribution. This income range is known as the phase-out bracket.
  • If you are married and file your taxes jointly, you can make up to $166,000 and contribute fully to the Roth IRA. If you make between $166,000 and $176,000, you fit into the phase-out bracket and can partially contribute to the Roth IRA.
  • Therefore, if you make over $176,000 as a couple or $120,000 as an individual, you will only be able to contribute to a traditional IRA. 
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