A traditional individual retirement account (IRA) is one tool that savers can use to prepare 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.
Find out now: How much do you need to save for retirement?
IRA Contribution Limits
For both the 2016 and 2017 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.
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 18, 2017 to contribute to an IRA for tax year 2016. You’ll have until April 17, 2018 to make a contribution for tax year 2017.
Your ability to contribute to a Roth IRA may be limited depending on your filing status and your modified adjusted gross income (MAGI).
Which IRA Contributions Are Tax Deductible?
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.
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
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.
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.
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