For the tax year 2015, the total contribution to all of your traditional and Roth IRAs is not allowed to exceed $5,500.00. The limit is $6,500.00 if you’re 50 years of age or older. If your compensation was less than this dollar limit, then your taxable compensation for the year is the limit.
The IRA contribution limit is not applicable to rollover contribution or qualified reservist repayments.
Claiming a Tax Deduction for an IRA Contribution
The contributions you make to a traditional IRA are tax-deductible, however the deduction may be limited if you or your spouse participate in a retirement plan at work and your income exceeds certain levels. The IRA deduction limits can be found on the IRS website. Contributions to a Roth IRA are not deductible.
Roth IRA Contribution Limit
The same general contribution limit applies to both traditional and Roth IRAs. However, a Roth IRA contribution might be limited based on filing status and income level. Contribution limits for 2015 are listed on the IRS website.
IRA contributions after age 70½
Taxpayers are not allowed to make regular contributions to a traditional IRA in the year you reach 70½ and older. But, they may still contribute to a Roth IRA and make rollover contributions to a traditional or Roth IRA regardless of their age.
When filing a joint return, a husband may be able to make contributions to an IRA even if he did not have taxable compensation as long as his wife did. The amount of your combined contributions cannot exceed the taxable compensation reported on your joint return. The formula is set forth in IRS Publication 590-A.
If neither spouse participated in a retirement plan at work, all of your contributions will be deductible.
If I participate in a retirement plan at work, can I contribute to an IRA?
According to the IRS, “You can contribute to a traditional or Roth IRA whether or not you participate in another retirement plan through your employer or business. However, you might not be able to deduct all of your traditional IRA contributions if you or your spouse participates in another retirement plan at work. Roth IRA contributions might be limited if your income exceeds a certain level.”
Tax on Excess IRA Contributions
An excess IRA contribution happens when you:
- Contribute more than the contribution limit.
- Make a regular IRA contribution to a traditional IRA at age 70½ or older.
- Make an improper rollover contribution to an IRA.
Excess contributions are taxed at 6% per year as long as the excess amounts remain in the IRA. The tax can’t be more than 6% of the combined value of all your IRAs as of the end of the tax year.
In order to avoid the excess contributions tax, withdraw the excess contributions from your IRA by the due date of your individual income tax return (including extensions) and withdraw any income earned on the excess contribution.
For certain situations that may allow you to avoid including withdrawals of excess contributions in your gross income, the IRS again refers taxpayers to Publication 590-A.