Am I Eligible to Contribute to an IRA?

By Dan Caplinger Markets Fool.com

IRAs were created to allow ordinary Americans to save for retirement more easily. Nearly anyone who has earned income is eligible to contribute to at least some type of IRA, but it's possible that you won't be able to use the IRA of your choice. In particular, Roth IRAs have income limits above which you're not allowed to make contributions, and traditional IRAs limit your ability to take deductions if you have access to an employer-sponsored plan and have too high an income. Moreover, some age-related restrictions apply to traditional IRAs. Knowing where you stand is critical so that you can make the right move with your IRA contributions.

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What you need to know to determine your eligibility

In order to figure out if you're eligible to contribute to an IRA, you need to know the following things:

  • Your tax filing status for the tax year for which you want to make the contribution.
  • Your modified adjusted gross income for that year.
  • How much earned income you have.
  • Whether you, or a spouse if you're married, have access to a work-sponsored retirement plan like a 401(k).
  • Your age at the end of the year.

Image source: Getty Images.

Once you have all that information, you'll be able to determine your eligibility fairly easily. The calculator below is an easy way to get the answers you need.

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* Calculator is for estimation purposes only, and is not financial planning or advice. As with any tool, it is only as accurate as the assumptions it makes and the data it has, and should not be relied on as a substitute for a financial advisor or a tax professional.

Below is a more in-depth explanation of the thinking behind what the calculator will tell you.

For any IRA, you need earned income

Earned income from a job is a prerequisite for contributing to any type of IRA. Maximum contributions of $5,500 for those under 50 or $6,500 for those 50 or older are available, but only if you have that much in wages, salary, tips, or other compensation from working. If you have less, then your contribution is limited to the amount of earned income you have. The only exception is that if you're married, you can use your spouse's earned income as the foundation for your own IRA contribution. That's known as a spousal IRA and benefits one-earner families as well as those couples where one spouse has relatively little work income.

Income limits on Roth IRA contributions

Above a certain amount of income, you can no longer contribute to a Roth IRA. Below is the breakdown by filing status:

For this filing status:

Contributions are reduced if income is above this amount

Contributions are not available if income exceeds this amount

Single, head of household, or married filing separately IF you didn't live with your spouse during the year

$118,000

$133,000

Married filing jointly or qualifying widow or widower

$186,000

$196,000

Married filing separately IF you lived with your spouse at any point during the year

$0

$10,000

Data source: IRS.

Pro-rata contributions are allowed in the income area between the two columns above.

Income limits on traditional IRA deductibility

Traditional IRAs don't have limits on contributions based on income, but you might not be able to deduct your entire contribution. If neither you nor a spouse is covered by an employer plan, then your traditional IRA contribution is always deductible regardless of your income.

However, if you're covered, then the limits below apply:

Tax Filing Status

Deductibility is reduced if income is above this amount

Deductibility not available if income exceeds this amount

Single or Head of Household

$62,000

$72,000

Married Filing Jointly

$99,000

$119,000

Married Filing Separately

$0

$10,000

Data source: IRS.

If you're not covered but your spouse is, higher income limits apply. Joint filers get a full deduction with income up to $186,000 for 2017, and it phases out between $186,000 and $196,000.

Age limits on traditional IRA contributions

Finally, those who are 70 1/2 or older at the end of the tax year aren't allowed to make traditional IRA contributions, even if you have earned income and would otherwise be eligible. This limit matches up with the law forcing you to take required minimum distributions from traditional retirement accounts at age 70 1/2.

However, the rule doesn't apply to Roth IRAs. Accordingly, you can make Roth contributions at any age -- as long as you have earned income.

IRAs are useful tools, but you'll want to make sure that you use them properly. By following these rules, you'll know what you can and can't do and can plan accordingly.

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