It's Not Too Late to Contribute to an IRA for 2016
The deadline for making 2016 contributions to an IRA is April 18, 2017. The contribution limit is the lesser of your earned income or $5,500 ($6,500 if you were over age 50 on December 31, 2016). You may also be able to contribute to an IRA for your spouse, even if they didn't have any income for the year.
Traditional IRA
To contribute to a traditional IRA, you must have been under age 70 1/2 by December 31, 2016. If you or your spouse was covered by an employer plan (e.g. 401k) for 2016, your ability to deduct your contribution may be limited depending on your filing status and modified adjusted gross income (MAGI) (see table below). If you won't be able to deduct your traditional IRA contribution, evaluate whether you can make a Roth IRA contribution (see below) as this is almost always better than making a non-deductible traditional IRA contribution.
| 2016 Income Phaseout Ranges for Traditional IRA | ||
|---|---|---|
| If covered by an employer-sponsored plan and filing as... | Your IRA deduction is reduced if your MAGI is: | Your IRA deduction is eliminated if your MAGI is: |
| ...Single or Head of Household | $61,000 to $71,000 | $71,000 or more |
| ...Married Filing Jointly | $98,000 to $118,000 | $118,000 or more |
| ...Married Filing Separately | $0 to $10,000 | $10,000 or more |
| If not covered by an employer-sponsored retirement plan, but filing joint return with a spouse who is covered by a plan | $184,000 to $194,000 | $194,000 or more |
Roth IRA
While there is no tax deduction for Roth IRA contributions, the earnings and eventual distributions are tax-free. For those who expect to be in a higher effective tax bracket when they begin distributions, a Roth IRA may be your best bet. In addition, there is no age limit to contribute to a Roth IRA and no required minimum distributions once reaching age 70 1/2. There are however income limitations that can reduce or eliminate your ability to contribute to a Roth IRA (see table below).
| 2016 Income Phaseout Ranges for Roth IRA | ||
|---|---|---|
| Your ability to contribute to a Roth IRA is reduced if your MAGI is: | Your ability to contribute to a Roth IRA is eliminated if your MAGI is: | |
| Single or Head of Household | $117,000 to $132,000 | $132,000 or more |
| Married Filing Jointly | $184,000 to $194,000 | $194,000 or more |
| Married Filing Separately | $0 to $10,000 | $10,000 or more |
Make Too Much Money?
If your income is too high to contribute to a Roth IRA and you're unable to deduct a traditional IRA contribution, there are some advanced tax planning techniques that may allow you to make a non-deductible traditional IRA contribution and later convert it a Roth IRA, paying little or no tax in the process. There are a number of considerations that need to be taken into account before attempting a "back-door" Roth IRA strategy to ensure that you don't inadvertently create a large tax bill or run afoul some of the IRS's principle-based doctrines. Contact us if you think you might be a candidate.