20 Jan There’s Still Time to Fund Your IRA
Remember that you have until you file your tax return to make a contribution to a Traditional IRA or Roth IRA for the 2016 tax year. The annual maximum contribution amount is $5,500 or $6,500 if you are age 50 or over.
However, if you or your spouse are an active participant in an employer’s qualified retirement plan, you may not be able to contribute the maximum amount. It depends on whether your modified adjusted gross income (MAGI) exceeds certain income thresholds. The limits for both Traditional and Roth IRAs are:
Note: Married IRA limits depend on whether either you, your spouse or both of you participate in a qualified employer provided retirement plan. If married filing separate and either spouse participates in an employer’s qualified plan, the income phaseout to contribute is $0 – $10,000.
How does the phase out work?
If your income is below the “full contribution” amount noted above, you can contribute up to the maximum annual contribution. If your income is above the “phase out complete” amount, you cannot make tax-advantaged contributions separate from your employer plan.
If your income falls between these ranges, this is how you calculate the reduced amount you can contribute:
- Subtract your income from the higher (phase out complete) amount to get your contribution income potential.
- Next calculate the phase-out range.
- Divide your contribution income potential by the phase-out range.
- Take the result times your maximum annual contribution amount.
Example: Roth IRA contribution limit for a single person, age 40 with MAGI of $122,000; $10,000 contribution income potential (132,000-122,000); divided by phase-out range of $15,000 ($132,000 – 117,000); 10,000/15,000= .666 x $5,500 = $3,663 2016 ROTH IRA contribution limit. Rounding rules apply.
If it’s too late for you to make a 2016 contribution, it’s not too late to plan for 2017. Here are the limits for 2017.
A final thought
If your income is too high to take advantage of these IRAs you can always make non-deductible contributions to a retirement account. While the contributions are taxed, tax on the earnings is deferred until they are withdrawn.