Roth IRA contribution limits are determined by a number of factors and remain relatively fluid. A Roth IRA is meant for lower income individuals, and therefore may not be for everyone. Generally those making more than $100,000 may not qualify to contribute to a Roth IRA or may contribute but at a lesser amount than those making less than $100,000. However, those at higher incomes may still be eligible for a traditional IRA.
While all individual retirement accounts are good for those who, at some point, may wish to stop working and enjoy their senior years, Roth IRAs are for those who have a lower income -- in this case that means under six figures a year. It is those people, specifically, who need to do a little more planning in order to save for retirement. Due to the fact that lower income people have a harder time saving for this eventuality, the government gives incentive for those who decide to think long term.
However, the government also understands that there are potential abuses in the system as well. That is one reason why the government has imposed Roth IRA contribution limits to discourage any such investment. Roth IRA contribution limits also help by giving lower income individuals a targeted amount they may strive to put away each year.
Roth IRAs work differently than traditional IRAs. In traditional IRAs, the tax advantage comes at the front end, where all contributions are tax deductible. Taxes are then owed on the withdrawal. On the other hand, a Roth IRA does not make front-end contributions deductible, but rather does not tax any withdrawals once the money has been in the account longer than five years.
Some investors get confused about the possibility of Roth IRA contribution limits and the possibility of phaseout of the income requirements. While there is a provision in the law that will allow investors, even those over the income level requirements, to convert preexisting retirement plans to Roth IRAs, those who wish to contribute new funds will still be subject to the income requirements.
As with 401(k) plans, Roth IRA contribution limits are often reviewed. The Internal Revenue Service's Web site or your financial adviser will be able to give you the current Roth IRA contribution limits. However, it is a good idea to keep up with any changes and act accordingly. When the Roth IRA contribution limits increase, it is a good idea to increase your contribution up to that limit, if that is affordable.