AIG Roth IRA Limits: Eligibility, Contributions, and Income Rules

AIG offers Roth IRA accounts that allow individuals to save for retirement with tax-free withdrawals, making them an attractive option for long-term financial planning. However, these accounts have specific rules regarding contributions and income limits that determine who can participate and how much they can invest each year. Understanding these restrictions helps investors avoid penalties and maximize benefits.

Eligibility Criteria

AIG Roth IRA accounts are available to individuals with taxable compensation, including wages, salaries, bonuses, commissions, and self-employment income. Passive income—such as rental earnings, dividends, and interest—does not qualify. Individuals without earned income cannot contribute unless they qualify under special provisions, such as spousal IRAs.

There are no age restrictions for opening or contributing, but contributions must come from eligible compensation earned in the same tax year. For instance, retirees who rely solely on Social Security or pension payments do not qualify, as these are not considered earned income.

Filing status also affects eligibility. Single filers, married couples filing jointly, and heads of household have different income thresholds. Married individuals filing separately face the strictest limits, especially if they lived with their spouse at any point during the year. In these cases, contribution limits are significantly reduced or eliminated.

Contribution Limits

For 2024, individuals can contribute up to $7,000 to a Roth IRA. Those aged 50 and older can make an additional $1,000 catch-up contribution, raising their limit to $8,000. These limits apply across all IRAs a person owns, meaning total contributions to both Roth and traditional IRAs cannot exceed the annual cap.

Contributions must be made with after-tax dollars to ensure qualified withdrawals remain tax-free. Participation in an employer-sponsored retirement plan, such as a 401(k) or 403(b), does not affect Roth IRA contribution limits. However, contributions cannot exceed earned income for the year. For example, if someone earns $5,000 in taxable compensation, their contribution is capped at $5,000, even though the standard limit is higher.

Phase-Out Ranges

Roth IRA contribution limits gradually decrease as income rises, rather than cutting off at a fixed threshold. This phase-out is based on modified adjusted gross income (MAGI), which includes wages and other taxable earnings but excludes certain deductions, such as student loan interest and contributions to health savings accounts. The IRS adjusts these limits annually for inflation.

For 2024, single filers with a MAGI below $146,000 can contribute the full amount. Contributions begin to decrease once income exceeds this level and phase out entirely at $161,000. Married couples filing jointly have a higher phase-out range, starting at $230,000 and ending at $240,000. Those filing separately who lived with their spouse at any point during the year face the most restrictive limits, with contributions reduced at $0 and eliminated at $10,000.

When income falls within the phase-out range, the maximum contribution must be recalculated using an IRS formula. This involves subtracting the lower limit from MAGI, dividing by the total phase-out range, and multiplying by the annual contribution limit. For example, a single filer earning $150,000 would need to calculate their adjusted contribution amount based on this formula.

Correcting Excess Contributions

Exceeding the contribution limit results in a 6% excise tax on the excess amount for each year it remains in the account. The IRS allows several ways to fix this mistake, but timing is key to avoiding penalties.

The simplest solution is withdrawing the excess contribution and any associated earnings before the tax filing deadline, including extensions. Any earnings on the excess must also be removed. If the account owner is under 59½, those earnings are subject to income tax and a 10% early withdrawal penalty.

If the mistake is discovered after filing a tax return, another option is recharacterizing the excess contribution by transferring it to a traditional IRA. This is useful when income unexpectedly exceeds the Roth IRA phase-out limits, making the original contribution ineligible. The recharacterization must include any earnings and be completed by the tax filing deadline. Unlike withdrawals, this method avoids immediate penalties but does not eliminate potential tax implications on the converted amount.

Spousal Accounts

A Roth IRA is typically funded with an individual’s earned income, but spousal accounts allow a non-working or lower-earning spouse to contribute based on their partner’s earnings. This option is available to married couples filing jointly and allows households with a single income source to build retirement savings.

The contribution limits for a spousal Roth IRA are the same as a standard Roth IRA. In 2024, each spouse can contribute up to $7,000, or $8,000 if aged 50 or older. This means a couple could collectively invest up to $14,000 or $16,000 annually, depending on age. The working spouse’s income must be at least equal to the total contributions made to both accounts.

Income phase-out ranges still apply, so if the couple’s modified adjusted gross income exceeds the threshold, contributions may be reduced or eliminated. Despite these restrictions, spousal Roth IRAs provide a tax-advantaged way for couples to maximize retirement savings.