Contribution Limits

• Over the years, the IRS has increased the amount you can earn and still contribute to a Roth IRA. For example, to make a full contribution in 2009 you couldn't earn more than $166,000 if you were married filing jointly, but you could earn up to $167,000 in 2010. Check Publication 590 on the IRS website, IRS.gov, for income limits in the current tax year.
  
  

Adjusted Gross Income

• The IRS allows you to subtract adjustments to your gross income (Adjusted Gross Income, or AGI). For example, if you filed a joint tax return with your spouse in 2009 and the total gross income for both of you was $176,000, you wouldn't have been able to make any contribution. But if adjustments brought your income below this amount, you could still make a partial or even full contribution.
  
  

Modified Adjusted Gross Income

• The IRS requires that you add certain adjustments back into your AGI before you can determine your final Roth IRA contribution amount. The IRS supplies a list of required modifications in Worksheet 2-1, "Modified Adjusted Gross Income for Roth IRA Purposes," available in Publication 590 under the heading, "How Much Can Be Contributed?" Items on this list can change, so be sure to check Publication 590 for the current tax year.
  
  

Contribution Phase-Outs

• You don't need a tax accountant to calculate your reduced contribution.the use of calculator image by yang xiaofeng from Fotolia.com
  
  If your Modified Adjusted Gross Income (MAGI) requires that you reduce your Roth IRA contribution, you can calculate your allowable contribution in just a few steps. You can also use Worksheet 2-2 in Publication 590 to help make the calculation.
  
  For example, if your MAGI was $170,000 for 2009, you would subtract this amount from the $176,000 limit and divide by $10,000 if you file jointly, $15,000 if you file singly or as head of household. Assuming you file as head of household, you would divide $6,000 by $15,000 to get 0.40 (or 40 percent). You would then apply this percentage to your maximum allowable contribution of $5,000 if you were under the age of 50 in 2009, for a result of $2,000. The IRS allows you to round up to the nearest $10. If your result is positive but less than $200, the IRS allows you to contribute the full $200.