Tax day is almost here, and many of us are scrambling to get the last of our tax documents in order. There is still time left to make a last-minute contribution to your IRA for tax year 2015. This year, contributions must be made by Monday, April 18th. IRAs are a powerful element of your retirement strategy and your contributions add up over time. Before we hit the deadline, make sure you’re familiar with this tax year’s contribution limits.
2015 and 2016 Contributions
IRA contribution limits change every year or every few years to stay in line with the cost of living. Since inflation has been low, the 2015 and 2016 limits are the same as they were in 2014: $5,500. Remember, this limit applies to all of your Roth and traditional IRAs — not per IRA account.
If you’re age 50 or older, you can contribute an additional $1,000 to your IRA accounts, allowing you to contribute up to $6,500 for the year. The catch-up contribution is designed to help those closer to retirement age maximize their savings for retirement.
Roth IRA Limits and Backdoor Options
While the maximum contribution for IRAs is $5,500 per year (or $6,500 if you are older than 50), Roth IRA contributions are phased out for those with high modified adjusted gross income. For single filers in 2016, the income phase out threshold begins at $117,000 and ends at $133,000. Within this range, you can only make a partial contribution and once you hit $133,000, you cannot make a Roth IRA contribution. For married filers in 2016, the income threshold starts at $184,000 and ends at $194,000.
If your income is above the cutoff amounts, there is still a few ways you can contribute to a Roth IRA. One option is a backdoor Roth transaction. You first contribute to a Traditional nondeductible IRA, which is available regardless of income, and then convert it to a Roth IRA. The IRS also allows you to convert after-tax contributions to a 401(k) into a Roth IRA.
Traditional IRA Tax Deductions
If you have a workplace retirement account, you can claim a tax deduction for your IRA contributions, so long as your income does not exceed certain annual limits. The phase out range for single and head of household filers is between $61,000 and $71,000, and the phase out range for married couples is between $98,000 and $118,000.
There aren’t any income limits for those who do not have a workplace retirement account and file as a single or head of household. However, for joint filers, if one spouse does not have a workplace retirement account but another spouse does, the deduction is phased out for couples earning between $184,000 and $194,000.
At 1on1financial, we are happy to help answer your IRA questions and offer advice on how to make the most of your retirement savings vehicles. If you have an old 401(k) that you’re looking into rolling into an IRA, give us a call at 909-981-1720 and I can help you decide the best move for you.
Philip A. Board MSFS, CFS, is a retirement planning specialist and the founder of 1on1financial, an independent comprehensive investment firm serving individuals and businesses near Upland, California. Through educational workshops and a non-sales environment, 1 on 1 Financial specializes in working with employees of Southern California Edison, UPS, Esri and Verizon.