Under current rules, there are instances where you may be able to contribute to a traditional or Roth IRA but not be allowed a current income tax deduction for this contribution. Depending upon your personal situation, a non-deductible contribution may still be attractive.
For 2016, your total contributions to all of your traditional and Roth IRAs combined may not exceed $5,500 ($6,500 if you are age 50 or older).
If your taxable compensation for the year is less than the contribution limit, you may contribute only up to the amount of this compensation. You can make contributions regardless of whether or not you participate in another retirement plan through your employer.
The same general contribution limit applies to both Roth and traditional IRAs as noted above. Your Roth IRA contribution, however, might be further limited based on your filing status and income.
In 2016 for example, there is no further limit for single taxpayers whose “modified adjusted gross income” (MAGI) is less than $117,000, or for married taxpayers filing jointly whose MAGI is less than $184,000. The single taxpayer contribution phases out between $117,000 and $132,000 of modified AGI and the married taxpayer filing jointly contribution phases out between $184,000 and $194,000.
IRA contributions after age 70½
Beginning with the year in which you will turn 70½ contributions to traditional IRA’s are not allowed. However, you can still contribute to a Roth IRA and make rollover contributions to a Roth or traditional IRA regardless of your age.
If you file a joint return, you may be able to contribute to an IRA even if you did not have taxable compensation as long as your spouse did. The amount of your combined contributions can’t be more than the taxable compensation reported on your joint return.
Tax on excess IRA contributions
An excess IRA contribution occurs if 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 cannot be more than 6% of the combined value of all your IRAs as of the end of the tax year.