Question

Donna, age 42 and a single taxpayer, has a salary of $104,500 and interest income of $20,000. What is the maximum amount Donna can contribute to a Roth IRA

Answer 1

Answer:

$5,800

Explanation:

Using 2020 limits:

Donna's AGI = $124,500 (interest income is taxed as ordinary income)

since Donna's is $500 higher than the income threshold for single taxpayers ($124,000), then her contribution to a Roth IRA is reduced by $200.

If Donna's AGI was less than $124,000, she could have contributed up to $6,000 (which is the maximum contribution allowed). Her contribution limit starts to reduce by $200 for every $500 or fraction in excess of the income threshold limit. The contribution limit phases out completely when the AGI is $139,000.

E.g. If Donna's AGI was $125,000, her contribution limit = $5,600