IRA contribution limits dictate what your retirement savings goals should be from year to year. Whether you choose a traditional IRA or a Roth IRA, knowing about the IRA contribution limits when they’re applicable and any exceptions can help you plan your finances better.
IRA Contribution Limits Explained
According to the Internal Revenue Service (IRS), the allowable contributions for all IRA accounts cannot exceed $5,500 for those aged 49 and under. Those 50 years and older can contribute up to $6,500 across all their IRA accounts in 2017.
You can claim these contributions as a tax deduction when you file your taxes for 2017. However, there are some limitations.
Modifications to IRA Contribution Limits
The IRS uses your adjusted gross income (AGI) when computing for the amount of IRA contributions you can claim for tax deductions. Changes in income mean changes in deductions as well.
If you have a traditional IRA, your deduction is limited once your income reaches certain levels. The amount that you can deduct is also affected if you or your spouse are covered by an employer’s retirement plan.
Traditional IRA Deduction Examples
Let’s look at scenarios regarding deductions. Married couples filing jointly, widows, and widowers can take the full deduction up to the limit. They must possess a modified AGI of $99,000 or more and contribute to a workplace retirement plan. A working couple’s modified AGI must be less than $186,000 in order to take the full deduction.
Those whose AGIs are between $99,000 and $118,999 and contribute to a retirement plan at work can partially deduct their contributions. Should your modified AGI range from $186,000 to $195,999 and your spouse is saving up at a retirement plan at work, you can go for a partial deduction.
If your adjusted gross income is $119,000 or more, and you’re saving up at your own employer’s retirement plan, you’ll gain no deductions. For couples with an AGI of $196,000 and one of the individuals are on a workplace retirement plan, also receive no deductions.
Roth IRA Contribution Examples
While the allowable deductions for traditional IRAs change significantly based on workplace retirement plans, Roth IRAs offer a more simplified approach.
Couples who are married and filing jointly, as well as widows and widowers, and who have a modified AGI of less than $186,000, can contribute up to $5,500 to their Roth IRA. This figure increases to $6,500 for those who are 50 years or older. Couples with a modified AGI of between $186,000 and $195,999 will find the number of their contributions reduced. A modified AGI of more than $196,000 renders couples ineligible to contribute to a Roth IRA.
IRA Contribution Limits Exceptions
As you might suspect, there are exceptions to these IRA contribution rules. Funds that are rolled over from another IRA or retirement plan within 60 days can go over the set limits for the both the traditional and Roth IRAs. Qualified reservist repayments also do not fall under the IRA contribution limits.
Another exception is that you may not contribute more to an IRA than you earn during that year. For example, if your total taxable compensation for 2017 is $5,200, that is the maximum amount you can contribute to your Roth or traditional IRA.
However, if you are non-working, your spouse can fund your separate IRA account. Your spouse can make the contributions on your behalf. If both of you are under the age of 50, this means that your spouse would need to have a taxable income of at least $11,000 in order for you both to make the maximum $5,500 IRA contribution.
It’s not too late to make the maximum IRA contributions for this year. In fact, many financial experts suggest using holiday gifts or bonuses to help you reach the maximum contributions. Making the maximum yearly contributions can build up your retirement nest egg quickly.