There is still time left to contribute to 2011 Traditional and Roth IRAs. You have until you file your 2011 taxes to make that contribution. Federal taxes for 2011 will be due on April 17, 2012, so this is the deadline for establishing your 2011 IRA. If you file for an extension, your IRA deadline will not be extended, so ensure you don’t miss the contribution deadline.
The contribution limit for 2012 IRAs is not increasing. Like 2011, you can contribute up to $5,000 total between Traditional and Roth IRAs. Taxpayers over the age of 50 can make an additional contribution of $1,000 between both types of IRAs for a total of $6,000.
| Year | Under Age 50 | 50 and Older | Standard Deadline | Open an IRA | |
|---|---|---|---|---|---|
| 2009 | $5,000 | $6,000 | April 15, 2010 | E*TRADE | ShareBuilder |
| 2010 | $5,000 | $6,000 | April 18, 2011 | E*TRADE | ShareBuilder |
| 2011 | $5,000 | $6,000 | April 17, 2012 | E*TRADE | ShareBuilder |
| 2012 | $5,000 | $6,000 | April 15, 2013 | E*TRADE | ShareBuilder |
Contributions to a Traditional IRA are tax deductible, but depending on your income and employment situation, the amount that can be deducted from your income varies. In 2012, for those who are covered by a retirement plan at work, single taxpayers or heads of household can deduct the full amount of their contribution if their modified adjusted gross income is up to $58,000. Between that amount and $68,000, taxpayers can take a partial deduction. At $68,000, the deduction is completely phased out.
Married taxpayers filing jointly (and qualified widows and widowers) can take the full deduction up to a modified adjusted gross income to to $90,000. The deduction phases out through $110,000. Married individuals filing separately can only take a partial deduction up to $10,000 in income.
If you are not covered by a retirement plan at work, the limits are more favorable. Single taxpayers, heads of households, and qualifying widows and widowers can deduct their full Traditional IRA contribution, regardless of income. Married taxpayers filing jointly can also deduct their full contribution unless their spouse is covered by a retirement plan at work. If that is the case, with a modified adjusted gross income of $173,000, the deduction phases out until the taxpayers reach an income of $183,000.
Taxpayers who are married by file separately can take a partial deduction through a modified adjusted gross income of $10,000, at which point the deduction is completely phased out.
Updated January 10, 2012 and originally published December 20, 2010. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @flexo on Twitter and visit our Facebook page for more updates.
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Can I participate in both my company sponsored traditional 401(k) (max amount: $16,500) and contribute to my traditional IRA in 2009? Any income limitations or restrictions? I have heard varying opinions on this. Thanks!
@ Melanie. You can most definitely contribute to both. The only thing that MAY happen is that you might not give the full tax deduction for your traditional IRA contribution (It then becomes a non-deductible IRA). It all depends on your AGI (for you and spouse) and whether you have a retirement plan available to you both (you do, of course, but if you have a spouse then that factors in, too). Check out my post on how to qualify for a tax deduction on your traditional IRA contribution http://www.goodfinancialcents.com/2009-traditional-ira-deductibility-contribution-limits/ Good luck!
wow there is a lot of bad information at the beginning of these comments..
if this has not been explained already..
There are two variables to the deductibility of a Traditional IRA, MAGI And participation in a QRP (Qualified Retirement Plan). If Both spouses do not participate in a QRP, there are NO MAGI limitations to the deductibility of a TIRA contribution…
Also there were no inflation increases on IRA limits for 2010..
If anyone needs real help on this stuff you can email me. I am a CPA and I specialize in pension law…
What is your email address? I would love to send you a quick question about TIRA decutions. Thanks! speedy0307 AT gmail.com
I’m not too smart on this stuff but I’ll ask anyway. I am 55. Can I put $10,000 into my traditional IRA per year and only take the $6K deduction?
Thanks, hope thats not a stupid question!
Steve
That is not a stupid question Steve. I have long wondered that myself. I don’t know the answer and if you have since found out, please post.
Jeff,
Can I contribute to a SEP IRA (I am self employed) and then convert it to a Roth right away??? For tax purposes, I will get a wright off on my 2010 taxes and pay the tax on the money in 2011 and 2012, am I missing something??? Mainly want to know if I can do a contribution and a conversion in the same year?? Thanks in advance
@ DG
Yes, you can do it and as of now will be able to do it each year going forward. A few things to consider:
1. What happens if you earn more in those years? Then you may pay more tax then.
2. If you are under 59 1/2, you better pay the tax on the conversion with money outside the IRA otherwise you’ll be subject to the 10% early withdrawal penalty.
3. If you have other IRA’s in the mix, those will be included in the conversion total. See this article: http://www.goodfinancialcents.com/2010-traditional-ira-to-roth-ira-conversion-tax-rules/
So you’re not missing anything, but for the most part it should cancel out the immediate tax benefit but if time is on your side the large chunk in the Roth IRA will be sweet at retirement.
Jeff,
My income is normally high enough that I am unable to make a Roth IRA contribution. I understand that starting in 2010 we can get around the Roth IRA income limitation by first contributing to a non-deductible Traditional IRA and then converting those contributions to a Roth IRA. So for 2010, I’m planning on making two $5K non-deductible IRA contributions, one for 2009 (before April 15, 2010) and one for 2010, then convert those contributions to a Roth IRA in early 2010. So far so good.
The twist in my situation is that I inherited a Traditional IRA from my domestic partner, who passed away in 2005. Because we weren’t allowed to marry, I’m considered a non-spousal beneficiary, and I’m not allowed to roll the Inherited IRA into my own Traditional IRA. Instead, I was planning on following the 5-year rule for distributions of inherited IRAs, i.e. wait until the end of 2010 and withdraw the entire amount in a taxable distribution.
My question is, when I convert the non-deductible Traditional IRA to a Roth IRA, will the IRS consider the Inherited IRA to be part of my Traditional IRA, and thus require pro rata tax on the combined amount? Does it depend on the relative timing of the Traditional-to-Roth conversion, versus the distribution of the Inherited IRA? In other words, would it be better for me to distribute the Inherited IRA first, before converting the Traditional IRA to Roth IRA, or should I stick to my original plan? Or does the IRS consider the Inherited IRA to be different from the Traditional IRA, so the order doesn’t matter?
Thanks in advance for your thoughts on this siutation,
Scott
Conversion rule is a great one to take advantage of this year. With taxes in the long term going only one way (up!) converting now can make a lot of sense for those with higher incomes.
I’m concluding a 23 year military career and considering my options regarding consolidation of retirement accounts. In addition to my Roth IRA, I have a TSP account, which I understand is treated the same as a 401(k) by the IRS. I have $30K in the TSP account, and $8K is tax free as it was contributed while I was serving in a combat zone. My question is whether it is advisable to roll the entire account into my Roth IRA, and assume I would only have to pay taxes on the remaining $22K?
Thanks – Mark
I can still make contributions to my Roth IRA after five years, yeah? Is there a lifetime limit of how much you can put in, or is it just the yearly maximum?
Jeff, I contributed $4,000 to a traditional IRA in 2009 and just realized that I am eligible to make a $5,520 contribution to a Roth IRA for 2009. I want to get $3,520 of the $4,000 out of the traditional IRA and into the Roth and contribute another $2,000 to the Roth before April 15. I turned 50 in 2009 so I am eligible for a $6,000 total IRA contribution. What do I have to do to get the money out of the traditional and into the Roth? Should I attach a note to my 2009 return about this activity?
Hello. I contributed $5000 for both my wife and I earlier in 2009 to a Traditional IRA through Fidelity. When filing my taxes with turbotax, I get the following message: Adam’s modified adjusted gross income (MAGI) is $169,313, which puts Adam over the limit for IRA deductions. To deduct a contribution, you can’t have a MAGI of more than $109,000 while being covered by a retirement plan at work.
I guess I am fine if I can’t deduct this, but what are my options. I don’t want to take the money out in 20 years and have to pay more taxes. Please help!
In 20 years, you will not be taxed on the $5,000 of IRA contribution–because you did not deduct this contribution on a pre-tax basis. In 20 years, you will only pay taxes on the earnings that were generated on the original $5,000.
Nevertheless, this is not an optimal situation.
You have two options to optimize your situation:
1. Reverse your 2009 IRA contribution and pay the 10% early withdrawl penalty plus tax on the earnings.
or
2. Convert your $5,000 of non-deductible IRA to a Roth IRA in 2010. Then, you will only pay tax on the earnings generated since you originally contributed the $5,000. Then, in 20 years, all of your withdrawls from the Roth IRA will be tax-free.
My husband and I each contributed the maximum of $5,000 into our Roth IRAs for tax year 2009, however, our MAGI is going to be around $176,000 for 2009. This means we can’t contribute to our Roths in 2009. I also expect we’ll be above the income limit in 2010 as well. Can we take advantage of the 2010 Roth IRA conversion loophole (no income limits on conversions in 2010 only) by converting our excess 2009 contributions to an after-tax Tradition IRA, then continue to contribute the maximum for 2010 as after-tax Tradition IRA contributions, and finally reconverting back to the Roth IRA before the end of tax year 2010?
I have exactly the same question
My self-employment income each year from consulting work is approx. $1,000. However, as a real estate investor, I net approximately $100,000 from real estate rental activity that is reported on Schedule E. Can I count any of my Schedule E income as “qualifying income” for the purposes of contributing to a Roth IRA? Or am I limited to the net income (after expenses) reported on my Sch. C for my consulting activity?
I have a 401k to which I contribue the max with makeup (60yo, $22,000) and company contributes $6600. I also have self employment income of about $150,000 and have established a SEP plan. Am I limited to contributing $49,000 less the $28,600 (401(k) or $20,400 to my SEP or can I contribute the maximum allowed to my SEP notwithstanding the 401(k) contributions?
Great info! I’m married, filing jointly. My wife has no income apart from mine. Are we (together) limited to the $5,000 limit on Traditional IRA contributions? Can we contribute $5k each to a Traditonal IRA?
I’m so glad I found this post! Please help me (I am single taxpayer, under 40yrs, $57k annual income):
I contributed $3500 to my employer’s Roth 401(k) in 2009, about $1000 into my employer’s regular 401(k), and $1000 into my ETrade RothIRA in 2009. I left my job in 2010, and had to roll over my employer’s 401k & Roth401k into my ETrade regularIRA & RothIRA, respectively.
Since I made $1000 in contributions for the 2009 year into the RothIRA, and am now rolling over $4200 (includes market growth on my $3500 from above), so it looks like I deposited over $5000 into my Roth IRA.
My question is, am I allowed to contribute $4000 for the 2009 taxable year, since I only technically contributed $1000, and the additional increase in my account is from a direct rollover? Also, can I still contribute $5000 for 2010?
Is there a penalty by the IRS for contributing over $5000 per year? (Although I really didn’t, because $1000 was into the RothIRA, $3500 into Roth401k, and $1000 into regular 401k)
Thanks so much! My situation is unique because my direct roll-over was cash, not securities. Because my employer wouldn’t rollover securities to ETrade since they were proprietary funds.
Make maximum contribution to ira, then retired early. Did not make enough to justify maximum contirbution,. can i take some out by april 15th
I have Roth accounts at both Vanguard and Fidelity. I use VG only to buy mutual funds and FD to only buy stocks because VG charges fees to buy stocks while FD doesn’t.
Because it takes time for money to transfer to these accounts and because I’m not sure what I want to buy yet, I’d like keep money ready in both accounts to buy right when I want to (instead of waiting for money to transfer between accounts). My question is, to accomplish this goal can I technically do the following:
I’ll contribute $5000 to each firm ($5k to VG and $5k to FD = $10,000 total for 2010). I would put that money in cash reserves. Throughout the year I’ll buy what I want, up to a max of $5000 total. By my tax filing deadline I’ll remove the remaining $5000 out of the cash accounts and pay no excess penalty.
I am just concerned that this will get me in trouble because it will look like I contributed $10,000 per year, which is obviously too much for anyone.
Secondly, when I remove the money from the cash accounts, do I need to fill out any paperwork with the IRS? I know I need to fill stuff out with VG and FD.
Thanks for any input.
*We contributed to tranditional IRA in early 2010 for 2010, $12k max, both over 50
*Since then, we have contribute 100% of income to a company 401k plan $22k, does that
effect our earned income for the IRA?
Are we now still eligible to have contributed to a Traditional IRA?
(Earned income to small now or is it not effected by 401k contributions?)
*If so, how do I reverse those Traditional IRA’s?
Do we just not claim them on tax return and cash them out, paying penalty in 2010?
Can I contribute to a Roth IRA if I am retired. I collect a monthly Pension check. I am not working. I am 55 years old.
I am 65 years old retired and receive 60K a year form retail property How much can i contribute to my standard 401 account that will be deductable on my income taxes for 2010
I am 68 and was unemployed in 2010. I am collecting social security and two pensions. I don’t call myself retired because I am looking for a part-time job. Can I still contribute to my Roth, Traditional IRA, and 401(k) for 2010?
Joanne
I’m looking for the best roth IRA and didn’t know much about comparing plans, so this was helpful.
I was eligible for a Roth IRA when I was single, but I got married in May. We now make too much to contribute to a Roth IRA, but I forgot about the income limits and continued to contribute up until now. What should I do? Thank you.
On our taxes we file married filiing jointly. I make under $176,000 and my wife has no income. We also live outside the USA and I work outside the USA and make under the $91,400 tax exemption. Can we both have Roth IRAs and contribute $5,000 to each for 2010?
I’m concluding a 23 year military career and considering my options regarding consolidation of retirement accounts. In addition to my Roth IRA, I have a TSP account, which I understand is treated the same as a 401(k) by the IRS. I have $30K in the TSP account, and $8K is tax free as it was contributed while I was serving in a combat zone. My question is whether it is advisable to roll the entire account into my Roth IRA, and assume I would only have to pay taxes on the remaining $22K?
Thanks – Mark
I have already contributed $10,000 to my roth this year. I would like to convert my Trad. Ira to my roth. Do I have to wait until 2011?
The article is titled “Traditional and Roth IRA Contribution Limits for 2011″, yet mentions nothing about Traditional IRA contribution limits…I just noticed that there is a link to myfederaltax.com, but that’s not really sufficient to warrant mention in the title of the article…
The contribution limits for Traditional and Roth IRAs are in the first paragraph in the article. ($5,000 combined if under 50 years old, $6,000 combined for everyone else.)
You can delete/ignore my comment. I was confusing it with 401k limits, which is what I was interested in… Sorry for my snarkiness. I read and enjoy your blog all the time!
No worries! I’ll put together an article on 401(k) rules for 2011 shortly.
I was curious reading this article. What happens if hypothetically, one contributes to a Roth IRA during the year, then their income breaches the limit by year’s end? Does the IRS really know? Do they cross check this? Wondering what would happen if said taxpayer either wanted to self-correct somehow or just ignore altogether and wing it with the IRS. I don’t make that kind of money so I don’t have that problem LOL. But curious for future reference.
Darwin, you kind find out more about via the IRS’ Pub 590. http://www.irs.gov/publications/p590/ch01.html#en_US_publink1000230422
The IRS knows because brokerages (should) submit a tax form (5498) to the IRS outlining your contributions for the year. It might take them a while for them to figure it out… but I wouldn’t chance it. It’s not difficult for the IRS to match your 1040 with the 5498 submitted by your IRA issuer.
Say, don’t we have into next year to contribute to our 2010 roth iras? I believe it’s April 15, 2011 is the last day to contribute for a 2010 roth ira.
I’ve been holding off, but I like to get it done in December, even though we have a bit of a window still for the Roth.
Too bad they didn’t continue to up the Roth IRA limit (as you can tell I’m a Roth fan) :)
You are correct. You can make contributions up until the due date of your return.
I definitely need to add a little bit more to my Roth IRA. Thanks for the reminder.
Holy moly…..it took me awhile to realize this post was updated from last year. I was starting to wonder where all of these comments came from…..
My wife wants to convert her IRA of $2000 in 2011 to a ROTH. Will this effect her limit on what she can contribute to her ROTH in 2011 assuming she qualifies for the maximum contribution amount?
I don’t have a 401k plan through my current employer. In 2010, I contributed $5,000 to a Roth IRA and $6,000 to a previous 401K that is now a rollover. I am 32 years old, and in doing my taxes, I just realized that this may be a problem. Do I have a course of action, or do I face some type of penalty?
Flexo-
I think you have a typo/error in the 1st paragraph when you say ” If you file for an extension, your IRA deadline will be extended as well.” I believe per IRS pub 590, it needs to be contributed by the due date of the return not including the extension, which is April 18th this year as you mention.
Thanks, RC, I’ll correct the article.
One very nice aspect of traditional IRA’s is that you can contribute for the previous tax year up until the tax filing deadline of the present year (i.e. you can contribute and get a tax deduction for 2009 up until the April, 2010 tax deadline for 2009′s taxes). You cannot do this with a Roth IRA.
You can contribute to a Roth IRA up until the tax filing deadline (for example, April 2011 for 2010′s Roth IRA).
Hello;
I rolled over my 401K from my previous employer to an IRA. Can I still make the $6K max contribuition to this IRA this year 2010 or does rolling over the 401K max that option out for 2010?
Thanks
Bob…
I have a Roth 401(k) at work, to which I have contributed the maximum ($16,500). Can I still contribute to a Roth IRA, assuming I am not over the modified AGI limit?
Contributing to a Roth 401(k) doesn’t preclude you from contributing to a Roth IRA, so as long as you’re within the income limitation and you haven’t contributed to a Traditional IRA, you can contribute to a Roth IRA up to the max.
Adjusted gross income is $103,000, married filing jointly. Want to know if we can contribute to a Roth IRA and deduct it on our 2010 taxes? What is the percent we can deduct from our income if we contribute $6000?
I have question. My co-worker is a know it all, and she said something that didn’t quite fit with me. We work in a VERY small office and are not eligible for the Employer Sponsored plan just yet. Because of this, we both have ROTH IRA’s. If we don’t have an ERP and we’re not eligible for one, are our ROTH contributions deductible, or a portion of them? I have always been under the impression that no contribution to a ROTH is ever deductible whether you have an ERP or not. Can someone help? Before I go saying “I told you so”, I’d like this backed up. I have researched it, and so far I’m still right. Just making sure though. Thanks.
My wife and I both contributed to employer sponsored 401Ks for the first four months of 2010. We both then swithched jobs and have not contributed to 401Ks since. Our joint incomes are pretty high. If we file sepearately (my income is about 30% higher than my wife), can we get any kind of partial deduction for contributing to a traditional IRA?
Michael… same situation! Did you ever find an answer? I want to contribute the 401(k) funds to an existing (or new, if necessary) IRA so I can deduct it from my massive tax owed. Please let me know!!
Thanks,
-Brian
for 2010 i contributed 6000 to my roth ira and 2000 to a traditional ira. I just found out I can’t do this?
does anyone know my options. I already filed my 2010 tax return
I have a quick question. My husband and I are both retired. He receives gifted money from his father twice a year. He would like to deposit this into his traditional IRA, but we’re not sure if he is eligible. He also receives stock options payments for the business he used to own. We are both 60 years old. Any info would be greatly appreciated. Thanks.
Jerri, His eligibility would be determined by how much income you report as a couple and whether or not your husband is an “active” participant in a plan, which it sounds like he is. Would suggest reading the IRS publication to isolate your specific circumstances.
Hi. i recently started a ROTH IRA through Share Builder. I am new to the who IRA stuff. when exactly will i pay tax? any help would be greatly appreciated.
Since it is a Roth IRA, you are presumably paying after-tax dollars into it. So, you’ve already paid the tax. Any future growth/earnings are not taxed.
Likewise, whereas the tax break from a conventional IRA would the ability to deduct your contribution from that year’s income on your income taxes, the tax break from a ROTH is that the money would be able to be withdrawn tax-free once it qualifies.
So do i need to do anything with next years tax filings in regards to my ROTH IRA?
my only income this year is from traditional IRA distribution, which i understand is taxable income. i now have some unexpected cash (flow) but no income, can i contribute to my ira and have that deduction (in effect to offset the distribution which is taxable income)?
thank you.
@jg, if you’re over 70 1/2 you can’t contribute to an IRA. not sure why you would want to take a distribution and then contribute it again unless you’re forced to…. thus the 70 1/2 rule.
As the owner of a holding company, the holding company pays my SEP contribution every year. The holding company owns a leasing business with 3 employees. If I continue to receive SEP contribution from the holding company is there an requirement that the employees also get a SEP contribution from either the holding company or lease company? These employees have each been employed with the leasing company for over 5 years.
I wonder if you might be able to answer a quick tax question? Being a
novice investor in the US, I overcontributed to a traditional IRA – I
already had $5k of Roth and didn’t know that there was a combined
limit of $5k for both types of fund. My understanding is that I can
request a disbursement now without penalty since I haven’t filed taxes
for 2011 yet (so long as I request the disbursement as due to an
over-contribution). Does this sound about right to you? I certainly
haven’t made any money on the contribution so far this year…
Thanks,
I put the full amount of my inherited IRA into AAPL stock ($27k). I was going to sell the stock and take the profit made this year as a distribution ($18k). Will it not be taxed as long term capital gains? I read that in a Traditional IRA the withdrawal is taxed as ordinary income (see below). It this true for inherited IRA also?
” There’s a trade-off for the benefits of a traditional IRA. When you withdraw money from your account, you have to pay tax on that money. Even worse, you have to treat those withdrawals as ordinary income, even if some of the profits actually came in capital gains or dividends — items that would typically qualify for a lower tax rate outside a retirement account.
Because of that drawback, it’s important to put the right stocks inside a traditional IRA. Apple (AAPL), for instance, has been a great growth stock that has turned many investors into millionaires over the years. But in an IRA, what would have been capital gains taxed at 15% will turn into ordinary income that will carry taxes of as much as 35%.”
Can a sole proprietor contribute 100% of profits (and the only earned income for that year) from consulting done during the 2011 tax year to an individual 401(k) and also contribute to a Roth or Traditional IRA where the combination of the contributions to the IRA and 401(k) exceed the person’s total earned income for the tax year?
I think I made a mistake to the 2011 contribution. I put $5k into a tranditional IRA, and another $5k into a roth IRA. what will happen? any advice may help. Thanks
Kate,
Tha IRS realizes that the complexity of the tax code will sometimes cause things like this to happen. Contact one or both of the institutions where the IRAs are held and tell them that you need to remove excess contributions. I’m sure they will be able to help you. However, I would do this before the tax deadline to avoid possible IRS penalties.
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