IRA contributions are critical, of course, because without them, there would be no funds for retirement. There are certain rules, as well as limitations, that apply to IRA contributions, depending on the type of IRA you have. Determining who can put money into an IRA also depends on the type of IRA you have.
The definition of an IRA contribution
A “contribution” is simply the money that is placed into the IRA account. In reality, an IRA is just a special type of savings account. Contributions to an IRA can only be made in cash. There are specific conditions that need to be met before contributions can be made. There are also annual limits on the amount of contributions that can be made, which are based on the type of IRA at issue.
Contributions to Traditional IRAs
Anyone can make a contribution to a traditional IRA, as long as either you or your spouse receives taxable income and you are under 70 ½ years of age. You cannot make contributions to a traditional IRA if you are 70 ½ years of age or older. Roth IRAs do not have the same age restriction.
In 2015, the maximum contribution to a traditional IRA is $5,500, if you are less than 50 years of age, and $6,500 if you are over age 50. If your contributions exceed these limitations, the excess contribution amount will be taxed at 6% every year, as long as that excess amount remains in the IRA. To avoid this penalty, it is necessary to withdraw the excess amount before the tax filing deadline.
Contributions to Roth IRAs
A Roth IRA is treated a little differently. In order to contribute to a Roth IRA, you must meet specific income requirements. In 2015, the income limit was between $116,000 and $131,000 for individuals and $183,000 to $193,000 for married couples. Individuals and couples whose income is slightly more, may be able to make partial contributions instead.
Employer-sponsored IRAs include SIMPLE and SEP IRAs. These types of IRAs can also be used by self-employed individuals and small business owners. To be qualified to create a SIMPLE or SEP IRA, an employer must have no more than 100 employees, each earning more than $5000, Another stipulation is that there must not be any other retirement plan available. The maximum contribution to a SEP IRA, in 2015, is $53,000. The maximum contribution to a SIMPLE IRA is $12,500, if you are under age 50, and $15,500 if you are older than 50.
If you have questions regarding IRA contributions, or any other retirement planning needs, please contact Sexton, Bailey Attorneys, PA online or by calling us at (479) 443-0062.