Individual Retirement Arrangement (IRA) refers to several types of retirement saving plans. Traditional IRAs offer immediate tax benefits to qualifying contributors in the form of tax deductible contributions. Roth IRAs provide eligible contributors with a deferred tax benefit in the form of tax free income from the Roth IRA. In both instances, Congress has placed income limitations which contributors must satisfy to receive these tax benefits. Additionally, in the case of a Roth IRA, income limits determine whether an individual is eligible to contribute to a Roth IRA.
Traditional IRA income limits for 2011
Traditional IRA income limits are used to determine whether the taxpayer may deduct the IRA contribution on his income tax return. Different rules apply depending upon the taxpayer’s tax filing status and whether the taxpayer is covered by another retirement plan.
If your filing status is married filing jointly (or qualifying widow or widower) and neither you, nor your spouse, is covered by a retirement plan at work, then you may deduct your entire IRA contribution from your taxes. If you are not covered by a retirement plan at work, but your spouse is covered by a retirement plan at work, then you may deduct your full contribution to a traditional IRA if your modified adjusted gross income (AGI) is below $169,000. If your AGI is between $169,000 and $179,000, then you may take a partial deduction of your contribution amount. If your AGI is above $179,000, then you may not deduct any portion of your traditional IRA contribution.
If your filing status is married filing jointly and you are covered by retirement plan at work, then you may fully deduct your contribution to a traditional IRA if your AGI is less than $90,000. If your AGI is between $90,000 and $110,000, then you may take a partial deduction of your traditional IRA contribution. Finally, if your AGI is $110,000 or higher, then you may not deduct any portion of your contribution.
If you are single and covered by a retirement plan at work and your AGI is less than $56,000, then you may deduct your entire traditional IRA contribution. If your AGI is between $56,000 and $66,000, then you may take a partial deduction of your traditional IRA contribution. Finally, if your AGI is $66,000 or greater, then you may not deduct any portion of your traditional IRA contribution.
If you are married and file a separate return, then your ability to deduct your traditional IRA contribution is severely limited. If your AGI is $10,000 or above, then you may not deduct any portion of your contribution. If your AGI is more than $0, but less than $10,000, then you may deduct a reduced amount.
Roth IRA income limits for 2011
Roth IRAs are not available for everyone. Your AGI must be below the limits set by Congress in order for you to make a full contribution to a Roth IRA. If your AGI exceeds the income limit, then you are either prohibited from making a Roth IRA contribution or your Roth IRA contribution amount will be reduced depending upon the amount of your AGI. An individual’s tax filing status determines the income limit applicable to the individual.
Married taxpayers filing a joint return, as well as qualifying widows or widowers, may make a full contribution ($5,000 or $6,000 if age 50 or older) to a Roth IRA if their AGI is less than $169,000. If the taxpayer’s AGI is at least $169,000 but less than $179,000, then the taxpayer may make a reduced Roth IRA contribution. Finally, if the taxpayer’s AGI is $179,000 or higher, then the taxpayer is prohibited from contributing to a Roth IRA.
Single taxpayers may make a full contribution to a Roth IRA if the taxpayer’s AGI is less than $107,000. Single taxpayers whose AGI is at least $107,000 but less than $122,000, are eligible to make a reduced Roth IRA contribution. Single taxpayers with an AGI of $122,000 or higher may not contribute to a Roth IRA.
A married taxpayer who files a separate return is subject to the same limitations as a single taxpayer if the taxpayer did not live with his or her spouse at any time during the tax year. Therefore, a married taxpayer filing a separate return who did not live with his or her spouse during the tax year may make a full contribution to a Roth IRA if the taxpayer’s AGI is less than $107,000. Similarly, the taxpayer may make a reduced Roth IRA contribution if the taxpayer’s AGI is between $107,000 and $122,000. Finally, the taxpayer is prohibited from making a contribution to a Roth IRA if the taxpayer’s AGI is $122,000 or above.
However, if the married taxpayer filing a separate return lived with his or her spouse at any time during the tax year, then the taxpayer’s ability to contribute to a Roth IRA will be severely limited. A married taxpayer filing a separate return who lived with his or her spouse at any time during the tax year will be prohibited from contributing to a Roth IRA if the taxpayer’s AGI is $10,000 or greater. If the taxpayer’s AGI is between $0 and $10,000, then the taxpayer may make a reduced contribution to a Roth IRA. The taxpayer may make a full Roth IRA contribution if, and only if, the taxpayer’s AGI is $0.