Question

Tom and Carla, both age 38, are married and have an adjusted gross income of $195,000. They have never established an Individual Retirement Account until this year, when they both opened Roth IRAs. Neither Tom nor Carla is covered by another retirement plan. What is the maximum amount they can each contribute to Roth IRAs?

Group of answer choices

Tom: $ - 0 - Carla: $ - 0 -

Tom: $1,200 Carla: $ 1,200

Tom: $2,400 Carla: $ 2,400

Tom: $4,800 Carla: $ 4,800

Tom: $6,000 Carla: $ 6,000

Answer 1

Per IRS, the maximum contribution limit for the 2019 tax year for Roth IRA is $6,000. However, this amount is phased out for AGIs in excess of $193,000. To calculate the eligble about of contribution to Roth IRA, we can follow the following steps:-

Step 1:- Determine amount in excess of $192,000

Excess = $195,000 - $193,000

Step 2:- Determine the percentage of phase out

Divide the amount by $10,000 (Roth IRA completely phases after $203,000 for married filing jointly).

$2,000/$10,000 = 20%

Step 3:- Calculate the phase out

Multiply the 20% (determined in Step 2) into the maximum allowed contribution.

$6,000 * 20% = $1,200

Step 4:-

Deduct the phase out amount from the maximum allowed contribution to arrive at the allowed Roth IRA contribution

=$6,000 - $1,200

=$4,800

Hence, the maximum allowed deduction for each individual is $4,800. Correct answer is Option D - Tom $4,800 and Carla $,4800

Option A is incorrect. Tom and Carla are eligbile to make Roth IRA contributions and hence this is incorrect.

Option B is incorrect. The amounts presented as maximum contribtuions permissable within this answer choice is incorrect.

Option C is incorrect. Tom and carla are permitted to contribute $4,800 each to a Roth IRA account and not in total. Hence, this option is incorrect.

Option D is correct. Both Tom and Carla can contribute $4,800 each to Roth IRA based on the above calculations or considerations.

Option E is incorrect. $6,000 is incorrect because there is a phase out of the maximum contribution for AGI in excess of $193,000 . As such, this option is not right.