As we near the end of 2016, many of us are enjoying the holidays and getting ready for a fresh start in 2017. As you look ahead to a new year, take a moment to analyze your finances and make sure you are taking full advantage of your IRA to save for retirement. While you have until April 17th, 2017 to make contributions for 2016, don’t wait until the last minute to max out your IRA.
IRAs are a powerful element of your retirement strategy and your contributions add up over time. Before we reach the deadline, make sure you’re familiar with this tax year’s contribution limits.
2016 Contribution Limits
IRA contribution limits change every year or every few years to keep up with the cost of living. Since inflation has been low, the 2016 limit is the same as it was in 2015: $5,500. Remember, this limit applies to all of your Roth and traditional IRAs — not per IRA account.
If you are 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 higher than 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.
Don’t be left scrambling in April…create a strategy now to max out your IRA for 2016 and you’ll benefit from your investment for years to come! At Key Wealth Partners, we are happy to help answer your IRA questions and offer advice on how to make the most of your retirement savings vehicles. Contact us today at (717) 283-4186 or email me at firstname.lastname@example.org.
David Niggel, CFP®, ChFC®, AIF® is the founder and president of Key Wealth Partners, LLC, an independent wealth management firm serving individuals, families, and business owners. Along with over a decade of financial services experience, he has advanced knowledge and training in providing holistic financial planning with fiduciary and ethical care, holding the CERTIFIED FINANCIAL PLANNER™, Chartered Financial Consultant®, and Accredited Investment Fiduciary® certifications. With hands-on entrepreneurial experience, he has the unique ability to help clients meet both their individual and business goals. Based in Lancaster, he serves clients through the York, Harrisburg, Hershey, and Central, Pennsylvania areas. Learn more by visiting www.keywealthpartners.com or connecting with David on LinkedIn.