Can a Large Sum Be Put Into a Roth IRA?

If you have a significant sum of money, a Roth IRA is certainly an appealing investment option. You can defer taxes as your money grows, and you pay taxes when you make your contribution, so there's no further tax due. It would be great to be able to stash a lump sum into Roth IRA. You can, as long as the lump sum IRA contribution is less than the maximum annual contribution allowed by the IRS.

Maximum Contribution Limits for Roth

All IRAs have a maximum annual contribution. The maximum as of the time of publication is ​$6,000​ if you're under age 50. If you're age 50 or over, the maximum is ​$7,000​. Each member of a married couple can have an IRA and contribute up to the maximum. If one spouse isn't working, each member can still have an IRA as long as the working spouse's annual income is at least equal to the amount of both contributions.

Earned Income Requirements

You must have an earned income to contribute to an IRA, whether it's a Roth IRA or a traditional IRA. Earned income is any income from working, including wages and self-employment income. Social Security and pensions don't count as earned income. Your annual income also has to be at least as much as your contribution. If you've inherited a lump sum of $6,000, for example, but your earned income for the year is $3,800, the maximum you can contribute to an IRA for that year is $3,800.

Alternatives to Large Sum Contribution

If you have a large sum of money to contribute to a Roth IRA, one alternative is to make contributions over a period of several years. There's no age limit on Roth IRAs. As long as your income exceeds your contribution, you can contribute annually.

A non-qualified deferred annuity is another alternative. Annuities offer tax deferral, but they can't be deducted on your taxes, and you pay taxes on the interest earned when you withdraw funds.

Income Limits for Roth IRA

Your income must be under IRS limits to make a Roth IRA contribution, which would also affect putting a lump sum into a Roth IRA. If you're married filing jointly, you can make the maximum contribution if your modified adjusted gross income is less than ​$198,000​ as of the time of publication. You can make a reduced contribution if your AGI is between ​$198,000​ and ​$208,000​, and no contribution if your AGI is over ​$208,000​.

If you're married filing separately and lived with your spouse, you can make a reduced contribution if your AGI is less than ​$10,000​ and no contribution if your income is ​$10,000​ or more. If you're single, head of household or married filing separately and living apart from your spouse, you can make a full contribution if your income is less than ​$125,000​, a reduced contribution if your income is between ​$125,000 and $140,000​ and no contribution if your income is ​$140,000​ or more.