IRA Limits Increase in 2019

For the first time since 2013, the amount that you can contribute to an IRA (Individual Retirement Account) will go up in 2019.  Regardless of whether you contribute to a Roth IRA or a Traditional IRA, folks under 50 will be able to contribute $6,000 in 2019.  Those over 50 and eligible for the IRA “catch-up” will be able to contribute as much as $7,000 in 2019.

However, income limits remain in place for Roth IRA contributions.

Roth IRA Contribution Limits

Roth IRAs are funded with post-tax dollars.  Once the money is in your account, it grows tax free and you can withdraw it in retirement tax free.  However, not everyone is eligible to contribute to a Roth IRA.

For a single tax filer, the phase-out begins at $122,000 and those who many over $137,000 may not contribute any funds at all to a Roth IRA (at least directly.

For the married tax filer filing jointly, the phase-out begins at $193,000 and you are entirely ineligible to contribute if your family earns more than $203,000.

The beauty of the Roth IRA is that once the money is in the account it is never taxed again.  If your funds were sitting in a regular brokerage account, you would be liable to pay taxes on dividends each year as well as capital gains taxes on any stocks or mutual funds sold.  In the Roth IRA, the funds are never again taxed – not even in withdrawal.

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Traditional IRA Deduction Limits – Spouse Covered By Retirement Plan 

Contributions to a Traditional IRA are tax-deductible in the tax year during which they are made.  Funds in a traditional IRA are considered tax-deferred.  You do not pay taxes on the funds during the year in which they go in and you do not pay taxes on dividends or capital gains during the growth of the money, but you do pay taxes on withdrawal.

In withdrawal, the money coming out of your IRA is considered income.  In many cases, however, you will be in a lower tax bracket in retirement than you are today and so you are effectively paying a lower tax rate on the deferred income that you otherwise would.

However, the IRS does not allow you to deduct taxes on your traditional IRA contributions in all cases where you or your spouse are covered by a retirement plan at work.

If your spouse is covered by a retirement plan at work, the non-covered spouse can deduct his or her entire traditional IRA contribution with joint earnings up to $193,000.  From $193,000 – $203,000, only a partial deduction is available.

Traditional IRA Deduction Limits – Taxpayer Covered by Retirement Plan

In cases where the taxpayer himself is covered by a retirement plan at work, there is still an opportunity to deduct contributions to a traditional IRA if you make below certain salaries.

A single taxpayer may contribute to both a 401K plan and may deduct his traditional IRA contributions if he earns $64,000 or less.  Again, a phaseout allows people making up to $74,000 to take partial deductions.

Married taxpayers filed jointly who are both covered by 401K plans or otherwise at work may still deduct their traditional IRA contributions if their earnings are less than $103,000.  And they may take a partial deduction as long as their total earnings are less than $123,000.

 

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