Currently, single adults making more than $112,000 ($178,00 for couples) per year cannot use Roth IRAs

I was just wondering what the reasoning behind the income restriction was for the Roth IRA retirement plan? While I don't fall into this income range, I was just curious what the tax law was trying to prevent with that limitation.


Every part of the tax law serves a purpose beside raising income. It tries to encourage some behaviors while discouraging others.

IRAs and Roth IRAs can be used to save for retirement. They can either save you tax money now, or later. While congress does want people to save for retirement they don't see a need to provide another tax break for the 'rich'. The tax break is to encourage people to save, but it is easier for somebody on the upper end of the pay scale to maximize their savings.

Limiting some tax breaks also allows them to control the size of the tax break.

  • +1 Exactly what I was looking for. Follow up: when you say tax break for the 'rich' what specifically do you mean? My intention with this question is not political, I really am just wondering what you specifically meant. – Justin Helgerson Nov 23 '13 at 0:27
  • 5
    For your question the dividing line between rich or not is $112,000 ($178,00 for couples). Sometimes the setting or adjusting of tax thresholds is a political decision. Cut taxes for 300 million people $x each; or the one million richest by 300 times $x each will cost the same amount of money. One decision will get you more votes. In the 2012 presidential election the definition of rich and how each candidate would address the tax situation for the rich and the non-rich was a major part of the campaign. Both sides had differing definitions of rich. – mhoran_psprep Nov 23 '13 at 1:07
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    +1 nice addressing of a complex issue. The tax code deals with income, rarely dealing with wealth itself. We should use the words "high earner" in this context, not Rich. We might agree that a say, $400K earner is in fact high, but a peek at their balance sheet? They may have spent every dime. High income does not equal being rich. The media uses the word as well. Not political, nor partisan, it's a word thing. – JTP - Apologise to Monica Nov 23 '13 at 1:27
  • +1 tax code is a primary vehicle to implement a social policy. Always has been, everywhere in the world. – littleadv Nov 23 '13 at 7:17

It stems from the restriction on IRA. You have to understand some historical context here.

IRAs were created by the Congress in 1974, as part of the ERISA. At that time, most middle- and upper-class employees had pensions. Those who needed the IRA benefit were the poor. In order to limit the benefit to those who needed it (and had no other way of retirement savings), the income limits were put in place. When the Roth option was added in 1998 - there was no overhaul on the IRA system, they just added another option. So they also kept the idea of limiting who can benefit from it, though there's a "backdoor" to work around the Roth IRA income limitations.

Since 1974 pensions became less and less popular, and are now almost extinct. Instead of removing restrictions and raising the limits on IRA, the congress came up with yet another retirement savings vehicle: 401k. So IRA became a weird thing on the sidelines with very low contribution limits and MAGI limits on availability that don't really make any sense in the current economical landscape.

  • +1 nice back door reference, it's easy to get this wrong. And you explained it well. – JTP - Apologise to Monica Nov 23 '13 at 11:46
  • But there is no income restriction for contributing to a Traditional IRA. – user102008 Nov 25 '13 at 8:54
  • @user102008 the restriction is on tax benefit. You can always make a non-deductible contribution (that's the basis for the "backdoor" Roth IRA option), but it will not provide the deferred taxation which is the basis of the retirement savings. If you're not utilizing the Roth IRA backdoor - there's no reason to make a non-deductible IRA contribution. You'd be better of with a taxable account, for long term investments. – littleadv Nov 25 '13 at 10:18
  • @littleadv: Right but the question is asking about why there is an income restriction for contributing to a Roth IRA. Traditional IRA is not alike because it does not have an income restriction for contributing. It has a different income restriction. Maybe you should explain why you think they are related. – user102008 Nov 25 '13 at 10:57
  • @user102008 the restriction is on tax benefit. Roth IRA always provides tax benefit, so its restricted. Traditional IRA provides tax benefit only if it is deductible - so the deductibility is restricted. I see no reason why these are not related. – littleadv Nov 25 '13 at 18:32

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