IRA Eligibility: Can I Contribute to an IRA in 2015?

By Markets Fool.com


Image: Tax Credits, Flickr.

Continue Reading Below

If you're looking for a place to stash your retirement savings, an IRA (individual retirement account) is the way to go. IRAs offer flexibility (you get to choose the investments to put into the account), favorable tax treatment (totally legal ways to shield some of your money from being taxed), and a host of other features that can mean the difference between a so-so retirement and a cushy one.

Whether or not you are eligible to contribute to specific types of IRAs (yes, there are multiple choices on the IRA buffet) and are able to take full advantage of the tax breaks each offers is determined by:

  • Your age
  • Your income
  • Your tax filing status (single filer, married filing jointly, married filing separately, etc.)
  • Whether or not you (or your spouse) are covered by a retirement plan at work (e.g., a 401(k) or 403(b))

For immediate gratification, our aptly named "How much can I contribute to my retirement plan each year?" calculator will give you a back-of-the-envelope answer to your burning IRA eligibility question.

However, since IRAs are savings vehicles policed by the IRS, there are a lot of rules and nuances behind each item on that short list above. We'll go into everything in detail below. In the meantime, since we're fond of time-saving tools, here's an at-a-glance cheat sheet to see where you might stand on the eligibility spectrum:

Continue Reading Below

2015 IRA Eligibility Cheat Sheet

Traditional IRA

Roth IRA

Spousal IRA

SEP IRA

Maximum Allowable Contribution

$5,500 ($6,500 if you're age 50 and over)

$5,500 ($6,500 if you're age 50 and over)

$5,500 ($6,500 if you're age 50 and over). But couple must file taxes jointly to be eligible.

$53,000 or 25% of compensation (or 20% if you are self-employed), whichever is lower. No extra catch-up contributions allowed for those age 50 and over.

Annual Earned Income Requirements

Contribution amount cannot exceed amount of earned income.

Contribution amount cannot exceed amount of earned income.

None for the non-working spouse, but total contribution amount cannot exceed your joint taxable income or double the annual IRA limit, whichever is less.

Minimum: $600 (unless your employer allows less)

Covered by a Retirement Plan at Work?

Ability to deduct contributions to a traditional IRA may be limited or entirely eliminated.

No effect on eligibility.

No effect on eligibility for Spousal Roth IRA. Otherwise, traditional IRA rules apply.

No effect on eligibility. But if the SEP is set up through an employer, you must have worked for the employer for 3 of the past 5 years (unless employer says otherwise).

Age Limits on Contributions

Yes. Contributions are not permitted beyond age 70.5.

No

None for a Spousal Roth IRA. Contributions not permitted beyond age 70.5 for a traditional Spousal IRA.

Yes. Must be 21 years or older to participate unless employer says otherwise. No contributions permitted beyond age 70.5 unless plan rules allow.

Income Limits on Contributions

No. Though deductibility of contributions may be limited (or entirely eliminated) based on income and tax filing status. (See table below.)

Yes. The amount that can be contributed gradually declines to zero based on your modified adjusted gross income. (See table below.)

Yes. If a traditional Spousal IRA, the amount that can be contributed is based on the married filing jointly MAGI limits. (See table below.)

Yes. Maximum contribution of 25% of your total income allowed up to a maximum income of $265,000.

Deductibility of Contributions

Fully deductible if you and your spouse are not covered by a retirement plan at work. Otherwise deductibility is phased out. (See table below.)

Non-deductible

Non-deductible for Roth. Fully deductible if spouse is not covered by a workplace retirement plan. Otherwise, deductibility is based on total household income.

It's complicated. See IRS Publication 560.

If you are self-employed, see the IRS guidance on calculating your own retirement plan contributions and deductions.

Now, let's wade deeper into the eligibility details of traditional, Roth, Spousal, and SEP IRAs.

Are you eligible to contribute to a traditional IRA?
In order to contribute to a traditional IRA, you must meet certain criteria:

  • You must be under the age of 70.5 (the age at which Uncle Sam requires people to cease making contributions and start making withdrawals from a traditional IRA).
  • You have to have received taxable earned income (e.g., wages from salary, self-employment, fees, tips, bonuses, commissions, taxable alimony). Things that do not count as earned income: pensions, Social Security benefits, interest and dividends from investments, unemployment benefits, and child support.
  • For a spousal traditional IRA, you must be married, file a joint income tax return, and the household must have earned income of at least the total amount contributed to all IRAs (both spouses' IRAs). Also, the spousal IRA must be held in his or her name and tax identification number.

While there are no income restrictions on your eligibility to contribute to a traditional IRA (as opposed to a Roth IRA), your income and a few other thingsdomatter when it comes to whether or not your contributions will be deductible. That leads to another question to help you decide which IRA to choose...

Are you eligible to deduct (fully or partially) your contributions to a traditional IRA?
Whether or not you qualify to receive the full benefits of a traditional IRA (the deductibility part) depends on your income tax filing status and whether you (or your spouse) participated on any day of the year in an employer's qualified retirement plan.

In general, if neither you nor your spouse participated in a 401(k) or other qualified retirement plan, your contribution will be fully deductible. Here are the rules, straight from the horse's (IRS's) mouth:

2015 Traditional IRA Deduction Limits If You ARE NOT Covered by a Retirement Plan at Work

If Your Filing Status Is...

And Your Modified Adjusted Gross Income (MAGI)* Is...

Your Maximum Deduction for 2015 for Those Under Age 50 Is...

Your Maximum Deduction for 2015 for those Age 50 and Over Is...

Single, Head of Household or Qualifying Widow(er)

any amount

$5,500

$6,500

Married Filing JointlyorSeparatelywith a spouse whois notcovered by a plan at work

any amount

$5,500

$6,500

If you file separately and did not live with your spouse at any time during the year, your IRA deduction is determined under the "Single" filing status.

Source: IRS.gov.

It gets a bit more complicated if you or your spouse did participate in an employer-sponsored retirement plan during the year. If that's the case, then the deductibility of your contribution to a traditional IRA will be based on your tax filing status and your modified adjusted gross income (AGI). (Modified AGI -- MAGI -- for most people is the same as the adjusted gross income on the last line of the first page of Form 1040.)

Find your income and filing status below to see exactly how, in technical terms, your deduction gets "phased out":

2015 Traditional IRA Deduction Limits If You or Your Spouse ARE Covered by a Retirement Plan at Work

Modified Adjusted Gross Income (MAGI)*

Maximum Deduction for 2015 for Those Under Age 50

Maximum Deduction for 2015 for Those Age 50 and Over

Single Filers

Married Filing Jointly

Married Filing Separately

You Participate in a Workplace Retirement Plan

Spouse Participates in a Workplace Retirement Plan

$61,000 & under

$98,000 & under

$183,000 and under

$0

$5,500

$6,500

$62,000

$100,000

$184,000

$1,000

$4,950

$5,850

$63,000

$102,000

$185,000

$2,000

$4,400

$5,200

$64,000

$104,000

$186,000

$3,000

$3,850

$4,550

$65,000

$106,000

$187,000

$4,000

$3,300

$3,900

$66,000

$108,000

$188,000

$5,000

$2,750

$3,250

$67,000

$110,000

$189,000

$6,000

$2,200

$2,600

$68,000

$112,000

$190,000

$7,000

$1,650

$1,950

$69,000

$114,000

$191,000

$8,000

$1,100

$1,300

$70,000

$116,000

$192,000

$9,000

$550

$650

$71,000 & over

$118,000 & over

$193,000 & over

$10,000 & over

$0

$0

Source: Schwab.com.

Now, let's move into the nitty gritty of Roth IRA eligibility.

Are you eligible to contribute to a Roth IRA?
In order to contribute to a Roth IRA, you must meet certain criteria:

  • Unlike the rules that cut off traditional IRA eligibility at age 70.5, the Roth IRA has no age restrictions. (That's a score for great grandpop!)
  • You must have received taxable compensation (e.g., self-employment wages, salaries, fees, tips, bonuses, commissions, taxable alimony) in the year in which you are contributing to a Roth IRA.
  • For a spousal Roth IRA, you must be married and file a joint income tax return. The same eligibility rules for the working member of the household apply to the non-working spouse. Also, the spousal Roth IRA must be held in his or her name and tax identification number.
  • In order to be eligible to contribute fully to a Roth IRA, your MAGI (again, that stands for modified adjusted gross income) must be less than $116,000 for a single filer in 2015, and $183,000 or less for married filing jointly. Partial contributions to a Roth IRA are allowed for MAGIs above those amounts (see the phase-out ranges below), but once you reach $131,000 for single filers and $192,000 for couples, you'll no longer be eligible to contribute to a Roth at all.

That last point's the stickler, and it's what removes the Roth IRA from the realm of retirement account choices for a lot of folks. Check your Roth IRA eligibility on this table:

2015 Roth IRA Contribution Limits

Modified Adjusted Gross Income (MAGI)

Maximum Contributions for Individuals Under Age 50

Maximum Contributions for Individuals Age 50 and Older

Single Filers

Married Filing Jointly

Married Filing Separately

$116,000 & under

$183,000 & under

$0

$5,500

$6,500

$117,500

$184,000

$1,000

$4,950

$5,850

$119,000

$185,000

$2,000

$4,400

$5,200

$120,500

$186,000

$3,000

$3,850

$4,550

$122,000

$187,000

$4,000

$3,300

$3,900

$123,500

$188,000

$5,000

$2,750

$3,250

$125,000

$189,000

$6,000

$2,200

$2,600

$126,500

$190,000

$7,000

$1,650

$1,950

$128,000

$191,000

$8,000

$1,100

$1,300

$129,500

$192,000

$9,000

$550

$650

$131,000 & over

$193,000 & over

$10,000 & over

$0

$0

Source:Schwab.com.

Are you eligible to contribute to a SEP-IRA?
The rules governing eligibility for Simplified Employee Pension Individual Retirement Arrangements (SEP-IRAs) can get complicated depending on whether the SEP is through an employer (many small business owners set up a SEPs instead of traditional workplace plans like a 401(k)), set up by you for yourself and your employees, or is set up by you as a self-employed person for your own retirement savings.

In order to be eligible to contribute to a SEP-IRA plan set up by an employer, you must meet certain criteria, unless the employer sets up the plan with less restrictive requirements (which is somewhat unusual):

  • You must be age 21 years or older.
  • You must have worked for the employer for three of the past five years, although it need not be consecutive years.
  • You must have earned at least $600 in 2015 from the business.

If you are the employer who set up the plan for yourself and any employees, all of the eligibility rules listed above generally apply to you as well. There are also some other rules that affect your eligibility:

  • You must have at least one employee. (If you're self-employed, you count as an employee.)
  • Contributions can only be made to the plan if it was established by the due date of your tax return (including extensions).
  • All eligible employees must participate in the plan. If even just one eligible employee does not open a SEP-IRA to receive contributions, the whole plan could be disqualified. However, you (the employer) can establish a SEP-IRA for an employee if he/she is unable or unwilling to do so themselves.

How much am I eligible to contribute to a SEP-IRA?
In the rules governing how much you are allowed to contribute annually to a SEP-IRA, here are the bare-bone guidelines. (For the (very important) details behind the rules, see the IRS'sPublication 560.):

  • If you are contributing to a SEP-IRA set up by your employer, you are allowed to contribute a maximum of $53,000 or 25% of compensation, whichever is lower. For the 2015 tax year, the maximum amount of compensation used in determining your contribution is $265,000. Be aware that your eligibility to contribute to a traditional IRA is not affected by your participation in a SEP-IRA; however, your ability to deduct contributions to a traditional IRA may be.
  • If you are self-employed -- a sole proprietor -- and set up the SEP-IRA for yourself, the maximum amount of compensation used to determine your contribution is still $265,000 for the 2015 tax year. But instead of being allowed to contribute the lesser of $53,000 or 25% of your compensation, the cut-off will be $53,000 or roughly 20% of your compensation, whichever is less. That's because the 25% limit is applied after accounting for the impact of the tax deduction and associated self-employment taxes on earnings, leading to a slight reduction in the effective percentage. Or, in the words of the IRS: "If you are self-employed, base your contribution on net profit-minus one-half of the self-employment tax-minus your SEP contribution." Yeah, that made our heads hurt, too, which is why we recommend a little light reading -- the IRS'sPublication 560 for clarity.
  • One other thing related to the amount you are eligible to contribute: If you are the employer, and the plan you establish kicks in money to employees' SEP-IRAs, the same rules and limits on contributions apply to you. So, if company contributions are proportional to each employee's salary/wages, everyone's contribution -- including yours -- must be based on that same percentage of salary.

Check your IRA eligibility -- it's worth it
Wading through the rules of IRA eligibility may not be as fun as, well, just about anything else, but if you're employed by someone else, work for yourself, are the boss, or are married to someone who brings home the bacon, the rewards of finding the right retirement account fit and figuring out exactly how much you can stash away and save in taxes are all worth it in the long run.

The future-you will be thankful that the present-you cared enough to figure it out.

The article IRA Eligibility: Can I Contribute to an IRA in 2015? originally appeared on Fool.com.

Fun your IRA with the right stuff. Try any Motley Fool newsletter services free for 30 days. We may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.