Individual Retirement Agreements or IRAs are investment tools for tax savings by employed persons. So, an employee can save by opting for traditional IRAs or participating in IRA (Roth) . But the Internal Revenue Code provides for IRA contribution limit . In other words,one can save in these retirement savings instruments only up to an extent . If you exceeds the limit, you will have to pay tax on excess contribution. So here are five most important points on IRA or IRA(Roth) contribution limits
1. What is basic IRA Contribution Limit ?
You can not contribute to traditional and Roth IRAs more than following :
- $6,000 for 2019 ($5,500 for year 2018 , or
- your taxable compensation for the year
For example , David has compensation of annual $ 7500 , he can at best contribute $ 6,000 .
Please note that there is an exception to above rule . The IRA contribution limit does not apply to either Rollover contributions or Qualified reservist repayments. More over there is a catch up contribution chance for persons of 50 years or more. Read what is catch up contribution limit.
2. Is there tax deduction limit for contribution to IRA or IRA (Roth) ?
IRA , (Roth) contribution can not be deducted from gross income . In other words, no tax deduction is allowed for contribution to IRA (Roth) .
However, traditional IRA contribution gets you tax deduction ( above the line deduction ) depending upon the fact whether you or if you are married , your spouse have participated in any other retirement plans. The rule for deduction of contribution of IRA contribution is as under :
- 100 % of deduction of contribution allowed if you or your spouse did not participate in any other retirement plans.
- If you or your spouse has participated in any other retirement plans , the deduction allowed is affected as under :
- If you are covered by a retirement plan at work, use this table to determine if your Modified Adjusted Gross Income affects the amount of your deduction. See IRAs for more information.
Filing Status Is… Modified AGI Is… Then You Can Take… Single or
Head of household(Note : If you file separately and did not live with your spouse at any time during the year, your IRA deduction is determined under the “Single” filing status.)$61,000 or less 100% of your contribution limit. more than $61,000 but less than $71,000 Only partial deduction. $71,000 or more NIL deduction. Married filing jointly or qualifying widow(er) $98,000 or less 100% of your contribution limit. more than $98,000 but less than $118,000 Only partial deduction. $118,000 or more NIL deduction. Married filing separately less than $10,000 a partial deduction. $10,000 or more no deduction.
3. Is there contribution limit to IRA (Roth ) ?
Yes, the contribution to IRA (Roth ) is dependent upon the Modified Adjusted Gross Income (MAGI) of a person filing the tax return in a particular status. In other words , the contribution limit is dependent on the filing status and the MAGI. The Limit for Tax Year 2018 & 2019 are as under :
IRA Contribution Limit for Tax Year 2018
| If your filing status is… | And your modified AGI is… | Then you can contribute… |
| Married filing jointly or qualifying widow(er) | < $184,000 |
|
> $184,000 but < $194,000 | a reduced amount | |
> $194,000 | zero | |
| Married filing separately and you lived with your spouse at any time during the year | < $10,000 | a reduced amount explained below . |
> $10,000 | zero | |
| Single, head of household, or married filing separately and you did not live with your spouse at any time during the year | < $117,000 |
|
> $117,000 but < $132,000 | a reduced amount | |
> $132,000 | zero |
IRA Contribution Limit for Tax Year 2015
| If your filing status is… | And your modified AGI is… | Then you can contribute… |
| married filing jointly or qualifying widow(er) | < $183,000 |
|
> $183,000 but < $193,000 | a reduced amount | |
> $193,000 | zero | |
| married filing separately and you lived with your spouse at any time during the year | < $10,000 | a reduced amount |
> $10,000 | zero | |
| single, head of household, or married filing separately and you did not live with your spouse at any time during the year | < $116,000 |
|
> $116,000 but < $131,000 | a reduced amount determined. | |
> $131,000 | zero |
4. Is Excess Contribution to IRA (Roth) taxable ?
The answer is yes. Excess contributions to IRA (Roth) are taxed at 6% per year. This tax rate is good till the the excess amounts remain in the IRA.
Second thing to note is that the tax on excess contribution can not be more than 6% of the combined value of all your IRAs as of the end of the tax year.
