IRA

Definition

Individual retirement arrangement (IRA) is an umbrella term that covers individual retirement account and individual retirement annuity. These are retirement savings vehicles established by individual taxpayers.

There are several versions of an individual retirement arrangement,

(a) traditional IRAs, where assets accrue earnings on a tax-deferred basis and distributions are treated as ordinary income,

(b) Roth IRAs, where assets accrue on a tax-deferred basis, but qualified distributions are tax-free

(c) SEP IRAs, which are established and funded by business owners/employers for their employees. The funding vehicle for a SEP IRA is a traditional IRA and

(d) SIMPLE IRAs, are established and funded by business owners/employers for their employees. Employees may also make salary deferral contributions to SIMPLE IRAs, and versions of SEPs that are referred to as SARSEPs.

  • Individual retirement account is the ‘account’ version of an individual retirement arrangement. The account can be established at a bank, credit union, brokerage firm, savings & loan, or other financial institution that satisfies the requirements established under the tax code IRC § 408(n)
  • Individual retirement annuity is the annuity-contract version of an individual retirement arrangement, issued by an insurance company. IRC § 408(b)

Referring Cite

IRC § 408 (a), IRC § 408 (b), IRS Publication 590

Additional Helpful Information

Individuals may contribute up to 100% of their taxable compensation/income up to the dollar limit that is in effect for the year to their traditional and/or Roth IRAs. Individuals who reach age 50 by the end of the year may contribute additional amounts referred to as ‘Catch-up’ contributions.

The dollar limits for 2002  and after are as follows:

Year

IRA contribution  limit

Catch-up contribution limit

2002

$3,000

$500

2003

$3,000

$500

2004

$3,000

$500

2005

$4,000

$500

2006

$4,000

$1,000

2007

$4,000

$1,000

2008

$5,000

$1,000

2009

$5,000

$1,000

2010

$5,000

$1,000

2011

$5,000

$1,000

2012

$5,000

$1,000

2013

$5,500

$1,000

2014

$5,500

$1,000

2015

$5,500

$1,000

2016 $5,500 $1,000
2017 $5,500 $1,000

 

  • An individual can split the annual limit between a traditional and a Roth IRA, or contribute the entire amount to either. Eligibility requirements apply to Roth IRA contributions.
  • These contributions must be made in cash \
  • Legislative History of IRAs:Information about when IRAs started, when deductibility was permitted and other historical information. 
  • Traditional IRAs: History and basic information
  • Roth IRAs: History and basic information

Roth IRA Contributions Eligibility Limits

Individuals may contribute to a Roth IRA only if their MAGI does not exceed a certain amount. The limits are as follows:

 

Tax Filing Status

2016 MAGI

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2017 MAGI

Allowed contribution

Single

$117,000 or less

$118,000 or less

100%

$117,000 - $132,000

$118,000 - $133,000

Partial

$132,000 or more

$133,000 or more

None

Married filing jointly

$184,000 or less

$186,000 or less

100%

$184,000 - $194,000

$186,000 -$196,000

Partial

$194,000 or more

$196,000 or more

None

Married filing separately

Less than $10,000

Less than $10,000

Partial

$10,000 or more

$10,000 or more

None

 

 

 

 

Traditional IRA Deductibility

Individuals who are active participants are eligible to deduct their traditional IRA contributions, only if their MAGI amounts do not exceed certain limits. For details on how this works, see the article Active Participant Status–Can You Deduct Your IRA Contribution?

The MAGI that applies to each tax-filing status is as follows:

 

Tax Filing Status

2016 MAGI

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2017 MAGI

Allowed deduction

Single

$61,000 or less

$62,000 or less

100%

$61,000 - $71,000

$62,000 - $72,000

Partial

$71,000 or more

$72,000 or more

None

Married filing jointly or a qualifying widower, and active

$98,000 or less

$99,000 or less

100%

$98,000- $118,000

$99,000- $119,000

Partial

$118,000 or more

$119,000 or more

None

Married filing jointly. Not active, but spouse is active

$184,000 or less

$186,000 or less

100%

$184,000 - $194,000

$186,000 - $196,000

Partial

$194,000 or more

$196,000 or more

None

Married filing separately

Less than $10,000

Less than $10,000

Partial

$10,000 or more

$10,000 or more

None