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Tuesday May 23, 2017
IRS Tax Time Tip -- 2016 IRA Contributions
In IR-2017-60 the IRS reminded taxpayers they can still fund an IRA for the 2016 tax year.
Traditional IRA contributions are tax deductible and the IRA fund grows tax-free. Distributions are usually made after age 59½ and are generally taxable. Starting on April 1 after the IRA owner turns 70½, there is a required minimum distribution (RMD). Each year after that age, a distribution must be taken based on the IRA value on December 31 of the prior year.
Roth IRA contributions are different in that they are made from after-tax income. A Roth IRA also may grow tax-free and future distributions will be tax-free. Roth IRA withdrawals of any amount may be made after the fund has been in existence for five years and the IRA owner is over age 59½. There is no required minimum distribution for a Roth IRA.
Contributions for the 2016 tax year may be made until April 18, 2017. Some low and middle-income persons may also qualify for the Savers Credit. Traditional IRA contributions are permitted for those who are under age 70½ on December 31, 2016. Roth IRA contributions are permitted at any age.
There are phaseouts of the IRA contribution amounts for some persons. The general contribution limit is $5,500 for 2016. For any person who reached age 50 by the end of 2016, the limit is increased to $6,500.
However, these contribution amounts will be phased out for some taxpayers. Based on a modified adjusted gross income (MAGI) of $61,000 to $71,000 for a single person or head of household, the traditional IRA contributions are phased out. Married persons who filed jointly face a phaseout with MAGI of $98,000 to $118,000. If you are not covered by a workplace plan but are married and your spouse is covered, the phaseout is from $184,000 to $194,000.
There are slightly different rules for Roth IRAs. A married couple filing jointly has a phaseout with MAGI of $184,000 to $194,000. Single persons and heads of household have a Roth phaseout with incomes of $117,000, to $132,000.
All of the contribution specifics for traditional IRAs and Roth IRAs are available at www.irs.gov by searching for Pub. 590-A.
Published March 17, 2017