2013 IRA Contribution Deadline

Have you made your 2013 IRA contribution yet? It’s not too late. You have until April 15, 2014 to make IRA contributions. Last year the IRS raised IRA contribution limits to $5,500 for individuals under age 50 with an additional $1,000 for individuals over age 50.  The following are some common questions we hear regarding IRA contributions:

ThirtyNorth Investments, LLC does not provide tax advice. You should consult your tax professional regarding questions of deductibility, limits, and eligibility before making IRA contributions.

  1. My spouse doesn’t work. Can he/she still make an IRA contribution?  – Generally, individuals who are unemployed are not allowed to contribute to retirement accounts. However, there is an exception for married individuals. The working spouse can contribute to an IRA on behalf of the non-working spouse. In order to make “spousal IRA contributions” you must be married, file a joint tax return, you must be under age 70.5, and have compensation of at least the amount you contribute to your IRAs. However, there is no age limit to contribute to a ROTH IRA, only a requirement to have earned income below certain thresholds discussed below. Fun fact: this is now officially known as the Kay Bailey Hutchison Spousal IRA Limit in honor of the former Texas Senator.
  2. I am covered by a retirement plan at work. Does this mean I can’t contribute to an IRA?  – You can absolutely contribute to your IRA even when covered by a retirement plan at work, although your contribution may not be tax deductible. Single filers can take a full deduction until their modified adjusted gross income (MAGI) reaches $59,000. The deduction phases out until there is no deduction at a MAGI of $69,000. For married filing joint, the phase begins at $95,000 and ends at $115,000 for 2013. Even though you don’t get the full tax deduction, a non-deductible IRA contribution grows tax-deferred and you only pay tax on the earnings when you withdraw the funds in retirement. Remember to file Form 8606 to record any non-deductible IRA contributions.
  3. I thought I couldn’t contribute to an IRA if my earnings are too high? – While the IRS does not restrict contributions to traditional IRAs based on income, there are restrictions for ROTH IRA contributions. ROTH IRA contributions are made with after-tax dollars, the earnings grow tax-deferred over time, and your withdrawals in retirement are tax-free. ROTH IRA contribution eligibility phase-outs begin at $178,000 modified adjusted gross income (MAGI) for married filing jointly and end at $188,000 for 2013. Single filer phase-outs start at $112,000 MAGI and end at $127,000. Between these income levels, partial contributions are allowed.
  4. Didn’t the IRS remove ROTH IRA eligibility limits in 2010? – No, in 2010 the IRS lifted the income limits for converting a traditional IRA to a ROTH IRA. This did not affect the eligibility for making a ROTH IRA contribution.  Individuals with any level of income can convert traditional IRA funds to a ROTH IRA and must pay taxes on the amount converted.
  5. I make SEP IRA contributions, so I can’t also make regular IRA contributions, right? – Actually, you can. Your SEP IRA contribution is limited to 25% of your self-employed compensation up to $51,000 for 2013, but you are also eligible to make your traditional IRA contribution in addition to your SEP contribution. However, the amount of the regular contribution that’s deductible may be limited because of your SEP participation, similar to individuals covered by retirement plans at work.

Here is a summary of 2013 contribution limits, eligibility, and phase-outs:

2013 Retirement Contribution Limits

You have until April 15, 2014 to make your IRA contributions for 2013. Don’t forget about this extra retirement savings tool at your disposal. You should consult your tax professional regarding questions of deductibility, limits, and eligibility before making your contributions

Information presented does not involve the rendering of personalized investment advice and should not be construed as an offer to buy or sell, or a solicitation of any offer to buy or sell the securities mentioned herein. Tax information is general in nature and should not be viewed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.