The deadline for 2015 IRA contributions is April 18, 2016. Workers and their spouses who were under age 70½ at year-end 2015 can each contribute up to $5,500 or $6,500 for those 50 and older. For traditional IRAs, income limits do not apply.
That is, those named can make contributions of these amounts to a traditional IRA. Whether those contributions will be tax-deductible is another matter. In any case, investment earnings inside an IRA will be untaxed until money is withdrawn.
Deduction limits based on plan participation
Worker not covered by plan. If a worker was not covered by an employer’s retirement plan in 2015, IRA contributions are deductible. Income is not an issue.
Example 1: Nora Dixon, age 29, works for a small computer graphics company that does not offer a retirement plan to its employees. Nora’s husband Oliver, also 29, is a physical therapist who is not covered by a retirement plan. Both spouses can deduct traditional IRA contributions up to $5,500 each for 2015, no matter how much they earn.
Worker covered by plan. However, for workers who were covered by an employer plan, income will determine deductibility. To deduct the maximum amount as a single filer, your modified adjusted gross income (MAGI) for 2015 must be $61,000 or less; you can take a partial deduction with MAGI up to $71,000. Over $71,000 of MAGI, single filers who are covered by an employer plan, cannot deduct any IRA contribution. (For plan-participating married people filing jointly, the 2015 MAGI ceilings are $98,000 for a maximum deduction and $118,000 for a partial deduction).
Example 2: Paul and Rhona Benson, both age 44, are each covered by a retirement plan at their jobs. The Bensons had MAGI of $108,000 in 2015. That is 50 percent of the way through the phase-out range for joint tax returns. Thus, Paul and Rhona can each contribute up to $5,500 to traditional IRAs for 2015, and they can each take a $2,750 tax deduction: 50 percent of the maximum.
One spouse covered by plan. Among married couples with higher incomes, one spouse might be able to deduct all or part of an IRA contribution. That would be the case if one spouse is covered by an employer plan, but the other spouse is not. The spouse who is not covered can deduct a full 2015 IRA contribution with joint MAGI up to $183,000, or a partial deduction with MAGI up to $193,000.
Example 3: Sheila Ford, age 65, is covered by an employer plan at work, while her husband Greg, 68, is retired. Their 2015 MAGI is $175,000. Both Fords can make a $6,500 traditional IRA contribution for 2015. However, because their joint MAGI is over $118,000, Sheila cannot take any tax deduction. Greg, on the other hand, is not covered by an employer plan, so he can take a full $6,500 tax deduction because their joint MAGI is under $183,000.
Note that traditional IRA contributions are available only to workers and spouses under age 70½. Based on this example, Greg would not be able to make any IRA contribution if he were age 72.
The Roth alternative
A taxpayer that can make a deductible traditional IRA contribution can instead make a contribution to a Roth IRA. Roth IRA contributions are never tax-deductible. However, after you have had a Roth IRA for five years and reach age 59½, all distributions are tax-free. Our office can go over the tax aspects with you to help you decide between a nondeductible Roth IRA and a potentially tax-deductible traditional IRA contribution.