It is easy to access the 2017 Contribution Limits via the web or at irs.gov. Simply stated anyone can contribute to an IRA but depending on two main factors – they may or may not be able to deduct the contribution from their income taxes. If your covered by a 401(k) (or the like) plan at work you can contribute up to $18k this year or $24k if your 50 or older. And for those that qualify they can also contribute to a ROTH IRA. Those limits for 2017 are $5500 for those under 50 or $6500 for those over 50. The challenge is that if you make too much according to the IRS rules your limited to what you can contribute and deduct. The income limits for 2017 are $133k for single filers and $196k for joint filers. To complicate matters - there are also rules related to whether you are covered by a plan at work.
One question that I have been asked multiple times over my career is whether or not it is worth it to contribute to an IRA if you’re not able to deduct the contribution from your taxes. It’s worthwhile to note that earnings inside an IRA grow tax deferred – regardless if the initial contribution was tax deductible. If a deduction is not available – those contributions will come out of the IRA in your retirement years’ tax free – as a return of basis. Only the earning will someday be taxable. Finally, you can still convert a non-deductible IRA into a ROTH IRA – you would then only have to recognize the growth on the account – not the contributions that were made over the years.
Click here for an archived article re: Roth vs. Traditional IRA’s
Stay at home spouses are not forgotten. You can still establish a deductible IRA for a non-working spouse. Withdrawing money from an IRA can be a tax burden and if you’re under 59 ½ years of age – they’ll hit you with an extra 10% penalty. There are rules that allow for non-penalty distributions from IRAs prior to attaining age 59 ½. These are called 72t early distributions. I would recommend the assistance of a qualified tax person to assist with this to better assure compliance with the rules.
As the 2017 tax filing deadline, fast approaches it is worthwhile to note that there is still time to contribute to an IRA for 2016. It is important that the IRA custodian know that the contributions are earmarked for 2016. The last day that you can contribute for 2016 is April 18, 2017.
Keep saving or if your already retired – keep reminding your kids and grandkids to save!!