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Have questions? Email Send your question to jbarnash@smartasset.com

2016 and 2017 IRA Contribution Limits

A traditional individual retirement account (IRA) is one tool that savers can use to plan for retirement. It allows you to sock away funds for the future and whatever you save can potentially lessen your tax bite. But the IRS limits how much you can contribute to these retirement accounts each year. Read on to find out the IRA contribution limits for tax year 2017 ans 2018.

IRA Contribution Limits

For the 2017 and 2018 tax years, the maximum contribution you can make to a traditional or Roth IRA is $5,500. This applies if you’re under the age of 50. If you’re over the age of 50, you may contribute up to $6,500. You can no longer make regular contributions to a traditional IRA beginning with the year you turn 70 1/2. But you can continue to make regular contributions to a Roth IRA and rollover contributions to a traditional IRA (or a Roth IRA) for as long as you live.

Your ability to contribute to a Roth IRA is limited depending on your filing status and modified adjusted gross income (MAGI). For the 2018 tax year, single filers and heads of household with a MAGI above $120,000 can only contribute a reduced amount. If you make more than $135,000, you cannot contribute to a Roth IRA at all. (For 2017 that range was $118,000 to $133,000.) Married couples filing jointly have an income phase-out range of $189,000 to $199,000 (up from $186,000 to $196,000 in 2017). The phase-out range for a married individual filing a separate return is $0 to $10,000 (same as 2017).

Those who want to take advantage of an extra tax break have until Tax Day to open and fund an IRA. You’ll have until April 17, 2018 to make a contribution for tax year 2017.

Which IRA Contributions Are Tax Deductible?

2016 and 2017 IRA Contribution Limits

Roth IRA contributions are not tax deductible. Traditional IRA contributions, however, can be deductible if you meet certain criteria. If you have an employer-sponsored retirement plan (or your spouse has one), your deduction may be limited. Whether you’re eligible for a full or partial deduction also depends on your MAGI and filing status.

Let’s say you’re covered by a retirement plan at work and you want a deduction for your IRA contributions. For the 2017 tax year, the phase-out range for single and head of household tax filers is $62,000 to $72,000. For married couples filing jointly, the phase-out range is $99,000 to $119,000. For married couples filing separately, the phase-out range is $0 to $10,000.

For the 2018 tax year, the phase-out range for single and head of household tax filers is $63,000 to $73,000. For married couples filing jointly, the phase-out range is $101,000 to $121,000. For married couples filing separately, the phase-out range is still $0 to $10,000.

A spouse who’s filing a joint tax return can contribute to an IRA even if he or she has no taxable income (as long as the partner has taxable income). If neither spouse has a workplace retirement plan, then all of your IRA contributions will be deductible.

Excess IRA Contributions

2016 and 2017 IRA Contribution Limits

Mistakes happen. Sometimes taxpayers make excess IRA contributions. This can happen when you exceed the IRA contribution limit or contribute to a traditional IRA after you turn 70 ½. An improper rollover contribution to an IRA also counts as an excess contribution.

These excess contributions get taxed at 6% per year as long as the extra amounts remain in the retirement account. To avoid this penalty, you’ll need to withdraw your excess contributions by the tax filing deadline. Also, don’t forget to withdraw any earnings generated by your extra contributions.

The Takeaway

It’s important to pay attention to the annual IRA contribution limits. If you don’t, you may be penalized for breaking a tax rule. Before filing your taxes, it’s best to double-check and make sure you didn’t contribute more than you were supposed to or claim a deduction you weren’t eligible for.

Photo credit: ©iStock.com/pinkomelet, ©iStock.com/Ridofranz, ©iStock.com/CatLane

Lauren Perez, CEPF® Lauren Perez writes on a variety of personal finance topics for SmartAsset, with a special expertise in savings, banking and credit cards. She is a Certified Educator in Personal Finance® (CEPF®) and a member of the Society of American Business Editors and Writers. Lauren has a degree in English from the University of Rochester where she focused on Language, Media and Communications. She is originally from Los Angeles. While prone to the occasional shopping spree, Lauren has been aware of the importance of money management and savings since she was young. Lauren loves being able to make credit card and retirement account recommendations to friends and family based on the hours of research she completes at SmartAsset.
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