Question

Chan, a single 35-year-old CPA, is covered by a qualified retirement plan at work. His salary is $120,000, and his total AGI is $129,000. The maximum contribution he can make to a Roth IRA in 2020 is

A) 0.

B) $2,400.

C) $4,000.

D) $6,000.

LABEL & SHOW ALL WORK.

Answer 1

Option C - $4,000

As per the IRS, the Roth IRA contribution that can be made by an individual, filing return as single and under the age of 50 is as follows:

Filing Status	2020 Modified AGI	Contribution Limit
Single	Less than $124,000	$6,000
$124,000 - $139,000	Reduced Contribution Limit
$139,000 or more	Ineligible

Since Chan's AGI is $129,000 , he is eligible for a redued contribution limit which is computed below:

	Reduced Contribution Limit - Computation
1	Modified AGI for Roth IRA	$129,000
2	Enter: $ 196,000 - married and filing joint return $ 0 - if married and filing seperate return $ 124,000 - all others	$124,000
3	Substract Line 2 from line 1 (129,000 -124,000)	$5,000
4	Enter: $10,000 if filing a joint return $ 15,000 for all others	$15,000
5	Divide line 3 by line 4 (5,000/15,000)	0.333
6	Enter lower of : $6,000 or your taxable compensation	$6,000
7	Multiply line 5 by line 6 (6,000*0.333)	$2,000
8	Substract line 7 from line 6 (6,000-2,000)	$4,000

This is your reduced Roth IRA contribution ($4,000).