Personal Finance

3 Things You Probably Don't Know About Roth IRAs

That would be worth about $1,600 per year in additional income if your tax rate fell to 20% in retirement, and you took the typical 4% yearly distributions.

Selena Maranjian : Many people don't realize it, but contributions to Roth IRAs aren't allowed for everyone. It's possible to earn so much that you're prohibited from contributing or that you're allowed only a reduced amount. Income limits are based on your modified adjusted gross income, or AGI. For 2015, they are as follows:

Filing Status Modified AGI Maximum Contribution
Married filing jointly or qualifying widow(er) < $183,000 up to the limit
> $183,000 but < $193,000 a reduced amount
> $193,000 zero
Married filing separately and you lived with your spouse at any time during the year < $10,000 a reduced amount
> $10,000 zero
Single , head of household , or married filing separately and you did not live with your spouse at any time during the year < $116,000 up to the limit
> $116,000 but < $131,000 a reduced amount
> $131,000 zero

Source: IRS.

Your modified AGI is your AGI, with any of the following deductions you're taking added back to it: student loan interest, half of the self-employment tax, qualified tuition expenses, tuition and fees deduction, passive loss or passive income, IRA contributions, taxable social security payments, the exclusion for income from U.S. savings bonds, the exclusion under 137 for adoption expenses, rental losses, and any overall loss from a publicly traded partnership.

If you're wondering about traditional IRAs, your income doesn't limit your ability to contribute the maximum each year, but the deductibility of your contributions may be limited or entirely eliminated.

Finally, know that -- for now -- there's a "back-door" way to fund a Roth IRA for high earners that involves making a nondeductible IRA contribution and then converting that newly created IRA to a Roth. It's frowned on by some in Congress, so it might disappear one of these years, but for now it's available.

If you're a high earner, it's important to understand these Roth IRA restrictions. Most of us, though, won't be affected by them.

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The article 3 Things You Probably Don't Know About Roth IRAs originally appeared on Fool.com.

Dan Caplinger has no position in any stocks mentioned. Jason Hall has no position in any stocks mentioned. Selena Maranjian has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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