The 2 Main Changes to IRAs in 2017

By Dan Caplinger Markets Fool.com

There aren't a huge number of changes to IRAs in 2017 that will affect most retirement savers. 2017 will see the same maximum contribution of $5,500 for those who are under age 50, while an additional $1,000 catch-up contribution will bring the total maximum to $6,500 for those who are 50 or older. However, even though those key contribution limits will stay the same, two main provisions that define how people can take advantage of IRAs will see some modest modifications. Below, we'll go through the two changes and how they might affect you.

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1. Higher maximum income limits for deductibility of traditional IRA contributions for families with access to employer plans

If you (or your spouse, if you're married) don't have access to a qualified retirement plan at work, then you have the right to deduct the full amount that you contribute to a traditional IRA. Indeed, that's the big draw of traditional IRAs, because they give you an up-front tax write-off you can claim up to the initial April due date for your tax return.

However, those who have access to qualified retirement plans from their employer are subject to adjusted gross income limits in determining whether they can deduct their IRA contributions. Those income limits will rise slightly in 2017, as you can see below.

Filing Status

Range of Phaseout in 2017 (Change From 2016)

Single or head of household

$62,000 to $72,000 (up $1,000)

Married filing jointly

$99,000 to $119,000 (up $1,000)

Married filing separately

$0 to $10,000 (unchanged)

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Data source: IRS.

If your adjusted gross income is below the lower amount, then you get a full deduction for your traditional IRA contribution. If it's above the higher amount, then you get no deduction. Between the two amounts, a phaseout provision allows a partial contribution.

A similar provision applies for those who don't have a retirement plan at work but who are married to someone who does. The table below has the applicable income limits.

Filing Status

Range of Phaseout in 2017 (Change From 2016)

Married filing jointly

$186,000 to $196,000 (up $2,000)

Married filing separately

$0 to $10,000 (unchanged)

Data source: IRS.

2. Higher maximum income limits for Roth IRA contributions

With traditional IRAs, you can always contribute -- the question is whether those contributions will be tax deductible. By contrast, the Roth IRA income limits actually prevent you from contributing if you earn too much money. Moreover, the income limits apply regardless of whether you have access to an employer plan at work or not.

The appropriate adjusted gross income limits for Roth IRA contributions in 2017 are as follows:

Filing Status

Range of Phaseout in 2017 (Change From 2016)

Single or head of household

$118,000 to $133,000 (up $1,000)

Married filing jointly

$186,000 to $196,000 (up $2,000)

Married filing separately

$0 to $10,000 (unchanged)

Data source: IRS.

One thing to mention here is that although Roth contributions are subject to income limits, Roth conversions from traditional IRAs are not. That opens the possibility of using what's known as the backdoor Roth strategy, which involves opening a traditional IRA and then converting it to a Roth. So far, the IRS hasn't tried to clamp down on this strategy, in part because it's less than ideal if you already have existing traditional IRA assets.

For the most part, IRA investors won't see many changes to their retirement accounts in 2017. That's all subject to change if the new administration passes tax reform packages quickly, but for your current planning, these income limit changes are the most important things to expect for the coming year.

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