There’s still time to make a regular IRA contribution for 2015! You have until your tax return due date (not including extensions) to contribute up to $5,500 for 2015 ($6,500 if you were age 50 by December 31, 2015). For most taxpayers, the contribution deadline for 2015 is April 18, 2016 (April 19, 2016, if you live in Maine or Massachusetts).
You can contribute to a traditional IRA, a Roth IRA, or both as long as your total contributions don’t exceed the annual limit (or, if less, 100% of your earned income). You may also be able to contribute to an IRA for your spouse for 2015, even if your spouse didn’t have any 2015 income.
Traditional IRA
You can contribute to a traditional IRA for 2015, if you had taxable compensation and you were not age 70½ by December 31, 2015. However, if you or your spouse was covered by an employer-sponsored retirement plan in 2015, then your ability to deduct your contributions may be limited or eliminated depending on your filing status and your modified adjusted gross income (MAGI) (see table below). Even if you can’t deduct your traditional IRA contribution, you can always make non-deductible (after-tax) contributions to a traditional IRA regardless of your income level. However, in most cases, if you’re eligible, you’ll be better off contributing to a Roth IRA instead of making non-deductible contributions to a traditional IRA.
Roth IRA
You can contribute to a Roth IRA, if your MAGI is within certain dollar limits (even if you’re 70½ or older). For 2015, if you file your federal tax return as single or head of household, you can make a full Roth contribution, if your income is $116,000 or less. Your maximum contribution is phased out if your income is between $116,000 and $131,000, and you can’t contribute at all if your income is $131,000 or more. Similarly, if you’re married and file a joint federal tax return, you can make a full Roth contribution, if your income is $183,000 or less. Your contribution is phased out, if your income is between $183,000 and $193,000, and you can’t contribute at all, if your income is $193,000 or more. And, if you’re married filing separately, your contribution phases out with any income over $0 and you can’t contribute at all, if your income is $10,000 or more.
Even if you can’t make an annual contribution to a Roth IRA because of the income limits, there’s an easy workaround. If you haven’t yet reached age 70½, you can simply make a non-deductible contribution to a traditional IRA and then immediately convert that traditional IRA to a Roth IRA. Keep in mind, however, that you’ll need to aggregate all traditional IRAs and SEP/SIMPLE IRAs that you own–other than IRAs you’ve inherited–when you calculate the taxable portion of your conversion. (This is sometimes called a “back-door” Roth IRA.)
Finally, keep in mind that, if you make a contribution to a Roth IRA for 2015–no matter how small–by your tax return due date and this is your first Roth IRA contribution, your five-year holding period for identifying qualified distributions from all your Roth IRAs (other than inherited accounts) will start on January 1, 2015.
| 2015 income phase-out ranges for determining deductibility of traditional IRA contributions: | ||
|
1. Covered by an employer-sponsored plan and filing as: |
Your IRA deduction is reduced if your MAGI is: |
Your IRA deduction is eliminated if your MAGI is: |
| Single/Head of household | $61,000 to $71,000 | $71,000 or more |
| Married filing jointly | $98,000 to $118,000 | $118,000 or more |
| Married filing separately | $0 to $10,000 | $10,000 or more |
|
2. Not covered by an employer-sponsored retirement plan, but filing joint return with a spouse who is covered by a plan |
$183,000 to $193,000 | $193,000 or more |
Founded in 1866 and celebrating 150 years in business in 2016, Allen Insurance and Financial is an employee-owned insurance, benefits and financial services company with offices in Rockland, Camden, Belfast and Southwest Harbor. For more information call 236-4311, or visit AllenIF.com
This article has been developed by an independent third party. Commonwealth Financial Network is not responsible for their content and does not guarantee their accuracy or completeness, and they should not be relied upon as such. These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your representative. Commonwealth does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice. Securities and advisory services offered through Commonwealth Financial Network,® Member FINRA/SIPC, a Registered Investment Adviser.