The historical Roth IRA contribution limits have steady increased since the Roth IRA was first introduced in 1997. In 2021, the Roth IRA contribution limit remains at $6,000, with a $1,000 catch-up contribution if you are 50 or over.
The Roth IRA is attractive for lower-income earners because you get to contribute lower-tax or no-tax money. The money then compounds tax-free. Upon withdrawal, provided the Roth IRA account has been open for more than five years, there are no taxes or penalties.
Let’s take a look at the historical Roth IRA contribution limits since it began.
Historical Roth IRA Contribution Limits
Below are the historical Roth IRA contribution limits as of 2021.
When I first started working in 1999, I couldn’t even be bothered to contribute to a Roth IRA because I only made $40,000 in Manhattan. Instead, I decided to max out my 401(k) to the tune of $10,500 at the time. Back in 1999, the Roth IRA contribution limit was only $2,000.
For those looking to diversify their retirement income sources, a Roth IRA is now a good vehicle. The maximum contribution is now a more meaningful $6,000 for workers under 50. The only problem for some is that not everybody will be able to contribute. The IRS has income limits to be able to contribute to a Roth IRA.
2021 Roth IRA Income Limits for Single Filers
In 2021, the Roth IRA income limit to qualify for a Roth IRA is $140,000 of modified adjusted gross income (MAGI) for single filers and $208,000 for joint filers. Annual Roth IRA contribution limits in 2021 are $6,000 for people under 50 ($7,000 for people 50 and up).
For reference, in 2020, the Roth IRA income limit to qualify for a Roth IRA was $139,000 of modified adjusted gross income (MAGI) for single filers and $206,000 for joint filers in 2020.
This new income limit isn’t that egregious since $$140,000 is considered a ~top 15 percent income.
If your MAGI falls between $122,000 and $139,999 you cannot contribute the full amount. Your contribution is reduced. Use the IRS worksheet to calculate your new reduced Roth IRA contribution limit.
If your MAGI is $140,000 or more you cannot contribute to a Roth IRA at all.
2021 Roth IRA Income Limits for Married Filers (Joint)
In 2021, the Roth IRA income limit to qualify for a Roth IRA is $208,000 of modified adjusted gross income (MAGI) for joint filers. If your MAGI is $208,000 or more, you cannot contribute to a Roth IRA.
If you file as married filing jointly or as a qualifying widow(er) your MAGI must be less than $198,000 to contribute up to the limit. Given the median household income in America is around $68,000, a $196,000 married income limit is considered quite generous.
If your MAGI falls between $196,000 and $205,999 you cannot contribute up to the limit. Your contribution is reduced. Use the IRS worksheet to calculate your new reduced Roth IRA contribution limit.
2021 Roth IRA Income Limits for Married Filers (Separate)
The IRS severely limits the ability to contribute to a Roth IRA for individuals who are married but file separately and have lived with their spouses at any time during the year. If you do not have earned income you will not be allowed to contribute to a Roth IRA.
If your MAGI is $10,000 or more, you cannot contribute to a Roth IRA. Starting at an income of $1,000, the amount you can contribute begins to drop. Use the IRS worksheet to calculate your reduced Roth IRA contribution limit.
Take Advantage Of The Roth IRA
If you earn below the income thresholds, you might as well open a Roth IRA account with any online brokerage account and contribute the maximum. Your marginal federal income tax bracket is 24%, which is the limit I would pay up front in taxes.
You won’t regret saving for retirement when it’s time for you to take things easier. Instead, you’ll be ecstatic that you saved and invested for so long. Long-term, stocks and bonds have performed well.
I regret not contributing to my Roth IRA when I had the chance. Don’t make my same mistake.
Should Have Contributed To A Roth IRA When I Retired Early
I retired early in 2012 at the age of 34. Although I maxed out my 401(k) every year since 1999, I’m not able to tap these funds penalty-free until 2036. It would have been great if I had built a Roth IRA to have the flexibility to use the money.
But looking back at my historical income, I breached the limit after the a couple years of working, so there was nothing I could do on the Roth IRA front.
Instead of building a Roth IRA, I built an after-tax portfolio that was generating about $80,000 a year in passive income by the time I left work for good. In 2020, that passive income figure has grown to roughly $260,000 due to a bull market in stocks and real estate along with additional savings thanks to the revenue from my online business.
Best Place To Open A Roth IRA
One of the problems I see with a traditional IRA and a Roth IRA is that the investor tends to invest in stocks and index funds they don’t know much about. Further, they tend to trade too often, thereby hurting their returns. I’ve seen many individual investors really blow themselves up by trading too much.
The key to successful long-term investing is to invest in well constructed portfolio appropriate for your risk tolerance. As a result, I highly recommend opening up a Roth IRA with Wealthfront, the leading digital wealth advisor today. They will construct a Roth IRA portfolio for you after you answer a few questions.
One final note. You can make IRA contributions for the previous tax year up to the tax filing deadline of the current year. For example, you can make a contribution for the 2019 tax year until April 15, 2020 etc.
If you make an IRA contribution between January 2 and the tax deadline, you should designate which tax year your contributions are for, as you can also contribute to current year IRAs during the same time frame.
The more you can invest for your retirement future, the better. There is no rewind button in life!
Diversify Your Investments Into Real Estate
Contributing to a Roth IRA is a no-brainer if you are in a low tax bracket. The historical Roth IRA contribution limits should continue to slowly go up over time. After you’ve maxed out your Roth IRA contribution, I strong recommend diversifying into real estate.
Real estate is my favorite asset class to build wealth. The combination of rising rents and rising capital values create fortunes over time. Further, if your’e looking to retire earlier, real estate generates higher amounts of passive income.
In 2016, I started diversifying into heartland real estate to take advantage of lower valuations and higher cap rates. I did so by investing $810,000 with real estate crowdfunding platforms. With interest rates down, the value of cash flow is up. Further, the pandemic has made working from home more common.
Take a look at my two favorite real estate crowdfunding platforms. Both are free to sign up and explore.
Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing. For most people, investing in a diversified eREIT is the easiest way to gain real estate exposure.
CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends. If you have a lot more capital, you can build you own diversified real estate portfolio.
Diligently Keep Track Of Your Finances
Stay on top of your Roth IRA and overall finances by signing up with Personal Capital. PC is a free online tool I’ve used since 2012 to help build wealth. Before Personal Capital, I had to log into eight different systems to track 35 different accounts. Now I can just log into Personal Capital to see how my stock accounts are doing. I can easily track my net worth and spending as well.
Personal Capital’s 401(k) Fee Analyzer tool is saving me over $1,700 a year in fees. Finally, there is a fantastic Retirement Planning Calculator to help you manage your financial future.
About the Author
Sam started Financial Samurai in 2009 as a way to make sense of the financial crisis. He proceeded to spend the next 13 years after attending The College of William & Mary and UC Berkeley for b-school working at Goldman Sachs and Credit Suisse. He owns properties in San Francisco, Lake Tahoe, and Honolulu and has $810,000 invested in real estate crowdfunding.
In 2012, Sam was able to retire at the age of 34. He spends time playing tennis, hanging out with family, and writing online to help others achieve financial freedom.
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