Can I Retroactively Contribute to a Roth IRA?

A Roth IRA is a popular way to save for retirement. Its many tax advantages make it a desirable vehicle for saving and investing money. However, Roth IRAs are governed by numerous IRS rules and regulations that stipulate how and when money can be invested. Still, there are ways to maximize your contributions.

Roth IRA Basics

A Roth IRA account is a tax-advantaged retirement savings account. All money invested in a Roth IRA grows tax-deferred. Thus, no taxes need to be paid on capital gains or dividends as long as the funds stay in the Roth IRA. Withdrawals from a Roth IRA are tax-free in retirement, though withdrawals that exceed contribution amounts made before the account owner turns age 59 1/2 and the plan has been in effect for at least five tax years, will be taxed as regular income and may be subject to an additional 10 percent tax penalty.

Roth IRA Annual Contribution Limit

The maximum allowable annual contribution to a Roth IRA in 2011 is $5,000. However, Roth IRA account holders who are age 50 or older may contribute an additional $1,000 catch-up contribution, for a total annual contribution of $6,000. This is a combined annual contribution for all IRAs. So, if you have a Roth IRA and a traditional IRA or two Roth IRAs, your combined contribution to all plans cannot exceed the annual maximum contribution.

Roth IRA Income Limitations

Contributions to a Roth IRA are restricted for high-income taxpayers. As of the time of publication,no annual contribution is allowed for people who are married filing jointly with income exceeding $179,000. The maximum contribution phases out for those earning over $169,000. For people who file as single, the phase-out begins at $107,000 with allowable contributions dropping to zero at over $122,000.

Retroactive Roth IRA Contributions

Roth IRA contributions made before the annual tax filing date, generally April 15th, may be designated as previous year contributions. For example, a Roth IRA contribution made on April 1st, 2011 can be considered a 2010 contribution. However, no contributions can be made for years earlier than the previous tax year. The income limitations apply based upon the year for which the contribution is to be designated. For example, if your income was above the limit during 2010, you must comply with contribution limits for 2010, even though you are actually making the contribution in 2011.