How Much You Can Contribute to Your Roth IRA in 2013

Roth IRAs are excellent tax-sheltered vehicles for your investments, and you’ll want to contribute as much as is reasonable for your current financial circumstances. Let’s explore how much you can contribute in 2013 and how much you should contribute based on what’s going on in your life.

By the way, as you’re going through this material, if you have any questions be sure to leave a comment at the end of the article!

What You Can Contribute to Your Roth IRA in 2013

According to the IRS, that depends on a number of factors. Let’s break it down for you.

If you’re married filing jointly or are a qualifying widow(er), and your adjusted gross income is less than $178,000, you can contribute up to $5,500; or $6,500 if you’re age 50 or older. If you make $178,000 or more but under $188,000, you’ll have to calculate a reduced amount. And finally, if you make $188,000 or more you can’t contribute anything.

If you’re married filing separately and you lived with your spouse at any time during the year, and your adjusted gross income is less than $10,000, you need to calculate a reduced amount. Anything more than that, and you can’t contribute. It’s obvious that married couples in this scenario will want to file jointly for more Roth IRA benefits in 2013.

If you’re single, the head of household, or married filing separately and you did not live with your spouse at any time during the year, if your adjusted gross income is less than $112,000, you can contribute up to $5,500; or $6,500 if you’re age 50 or older. If you make $112,000 or more but less than $127,000, you’ll need to calculate a reduced amount. And finally, if you make $127,000 or more, you can’t contribute anything.

Why Invest in a Roth IRA?

Qualified distributions (the main thing to remember about these is that distributions are typically considered qualified once you reach age 59 1/2) are tax free, which means you won’t be taxed on your gains made throughout your investing term. However, you are taxed on the money going in (in other words, you can’t deduct it on your taxes the year you put in the money).

That means that money inside of a Roth IRA can grow tax free, which will be more advantageous than if you were to invest within a traditional IRA.

How Much and When Should You Invest?

Before you start investing in a Roth IRA, personal finance expert Dave Ramsey suggests you reach the following goals:

• Pay off all non-mortgage debt
• Have a fully funded emergency fund
• and invest up to the match in a 401(k).

After you have met these goals, you should invest 15% of your gross income into retirement accounts (including your 401(k), etc.). That’s the time you start investing in your Roth IRA.

How Should You Invest?

That’s up to you. Currently, we invest with a local investing professional who puts our money into a variety of different mutual funds. We like to be hands-on in our investing.

But if you’re looking for something you can do online that’s quick and simple, you might want to try investing at Betterment.com.

Do you have a Roth IRA? Have questions about investing? Leave a comment!