As April 15th approaches, many of us are scrambling to get the last of our tax documents in order. But don’t forget that you also have until April 18th to contribute to your IRA for tax year 2015. At first glance, IRA contribution limits may seem small, but IRAs are a powerful element of your retirement strategy and your contributions add up over time. Before we hit April 18th, 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 inline 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.
If you would like to know more about IRA contributions or how to maximize the impact of your retirement accounts, I can help you evaluate your current strategies and explore other options that align with your goals. Call our office at (860) 659-5977 or email me at [email protected] to discuss.
About Michael Nobile
Michael Nobile is the CEO of Nobile Hinchey Private Wealth Management, an independent financial services firm serving high-net-worth families and business owners near Glastonbury, Connecticut. Michael brings 35 plus years of experience in the wealth management industry and is extremely knowledgeable in retirement income and tax advantaged strategies. Outside the office, Michael enjoys time with his wife, two children, and two grandchildren. Longtime Glastonbury residents, they now reside in East Hampton. It’s Michael’s dream to introduce his grandchildren to his business and work together someday.