a. For 2020, the maximum contribution to a Roth IRA for individuals under 50 years old is $6,000. However, the contribution limit is reduced for those with an AGI above certain thresholds. For a married couple filing jointly, the phase-out range for Roth IRA contributions begins at an AGI of $196,000 and ends at $206,000. Since their AGI is $201,000, they fall within the phase-out range. To calculate the reduced contribution limit, we need to use the following formula:
Reduced contribution limit = Maximum contribution limit × (AGI - upper limit of phase-out range) ÷ (phase-out range)
Using the values given in the problem, we get:
Reduced contribution limit = $6,000 × ($201,000 - $196,000) ÷ ($206,000 - $196,000) = $2,500
Therefore, Ashley can contribute $2,500 to her Roth IRA if they file a joint return.
b. If Ashley files a separate return, the phase-out range for Roth IRA contributions begins at an AGI of $0 and ends at $10,000. Since her AGI is $100,500 (half of the couple's AGI), she falls within the phase-out range. To calculate the reduced contribution limit, we need to use the same formula as in part (a):
Reduced contribution limit = Maximum contribution limit × (AGI - upper limit of phase-out range) ÷ (phase-out range)
Using the values given in the problem, we get:
Reduced contribution limit = $6,000 × ($10,000 - $100,500) ÷ ($10,000 - $0) = $0
Therefore, Ashley cannot contribute to her Roth IRA if she files a separate return.
c. If Ashley earned all of the couple's income and contributed the maximum amount she is allowed to contribute to her Roth IRA ($6,000), then the couple's AGI would be reduced to $195,000 ($201,000 - $6,000). Since this is below the phase-out range, there would be no reduction in the contribution limit for Jackson's Roth IRA. Therefore, he could also contribute $6,000 to his Roth IRA, for a total contribution of $12,000 for the couple.