IRA Contribution Limits
Both Traditional and Roth IRA participants are eligible to contribute up to $5,500 per year from 2015 to 2016. However, participants who are 50 years or older can contribute up to $6,500. If your taxable compensation for the year was less than this limit, you can contribute up to your taxable compensation.
What Does the IRA Contribution Limit Not Apply To?
The IRA contribution limit does not apply to:
Can I Contribute to an IRA if I Participate in a Retirement Plan Through My Job?
- Rollover Contributions – If you change jobs and “rollover” your previous retirement plan into your new IRA, these rolled over funds do not count towards your yearly contribution limit.
- Qualified Reservist Repayments – An army reservist who is called to active duty for more than 179 days may be eligible to withdraw from his or her IRA while serving on active duty without facing IRS penalties.
Even if you participate in a retirement plan through your employer, you can contribute to a traditional or Roth IRA. However, you may not qualify for deductions on all of your traditional IRA contributions if you or your spouse participates in a retirement plan through an employer. Also note that Roth IRA contributions might be limited if your taxable income exceeds a specified level.
Can I Claim a Tax Deduction for My IRA Contributions?
Traditional IRA contributions may be tax-deductible. Keep in mind that this deduction may be limited if you or your spouse are covered by a retirement plan at work and your combined incomes exceeds specified levels:
- If you are single/head of household and make $61,000 or less, you may be eligible for a full deduction up to the amount of the contribution limit.
- Married couples who file jointly or those who are considered to be a qualifying widow(er) and make $98,000 or less are eligible for a full deduction up to the amount of the contribution limit.
- If the couple or qualifying widow(er) make more than $98,000 but less than $118,000, a partial deduction is allowed.
- If the couple or qualifying widow(er) makes $118,000 or more, no deduction is available.
- Couples who are married but file separately and make less than $10,000 are eligible for a partial deduction. If the couple makes $10,000 or more, no deduction is available.
Tax On Excess IRA Contributions
An excess IRA contribution occurs if a participant:
- Contributes more than the contribution limit
- Makes a regular IRA contribution to a traditional IRA at age 70½ or older
- Makes an improper rollover contribution to an IRA
In cases like this, it is important to know that excess contributions are taxed at 6 percent per year as long as the excess amounts remain in the IRA. However, the extra tax cannot be more than 6 percent of the combined value of all IRAs at the end of the tax year.
How Do I Avoid Excess Contributions Tax?
If you have excess contributions in your IRA plan and want to avoid paying the 6 percent tax:
- Withdraw the excess contributions from your IRA by the due date of your individual income tax return
- Withdraw any income earned on the excess contribution
Are There Roth IRA Contribution Limits?
Both Roth and Traditional IRAs have contribution limits. However, your Roth IRA contribution might be limited based on your filing status and income. Learn more about Roth IRA Contribution Limits here
Can I Make IRA Contributions After Age 70½?
Unfortunately, you cannot make regular contributions to a traditional IRA after the year you reach 70½ years or older. However, you can contribute to a Roth IRA and make rollover contributions to both a Roth and Traditional IRA, no matter your age.
Are Spousal IRAs an Option?
If you file a joint tax return with your spouse, you may be able to contribute to an IRA even if you did not earn taxable compensation. This only works if your spouse earned taxable compensation. However, keep in mind that the amount of your combined contributions cannot exceed the taxable compensation reported on your joint return. If neither you nor your spouse participated in a retirement plan at work, all of your contributions will be deductible.