2016 IRA Contribution Limits

2016 IRA Contribution Limits

The Internal Revenue Service (IRS) has announced the contribution limits and deductibility limits for Individual Retirement Arrangement (IRA) accounts for 2016.

The Contribution Limit

The most important number is the contribution limit.  The 2016 IRA contribution limit remains unchanged at $5,500 per person.  If you are trying to set up your deductions to max out the amount, that equals $458.33 per month.

Persons aged 50 or older may make an additional “catch-up” contribution of $1,000, for a total yearly contribution of $6,500.

Traditional IRA Contributions

If you contribute to a tax-deductible, traditional IRA, the deductibility of your contribution is based on three factors:

  • your tax filing status,
  • your modified adjusted gross income (MAGI),
  • whether you and/or your spouse are covered by a workplace retirement plan.  For purposes of this conversation, the Thrift Savings Plan (TSP) is a workplace retirement plan. If you are eligible to contribute to TSP, even if you choose not to contribute, you are considered to be covered by a workplace retirement plan.

If you are covered by a workplace retirement plan, here are the ranges at which your contribution becomes non-deductible:

Single/Head of Household:  

  • may deduct up to the full $5,500 limit if they make less than $61,000 per year,
  • may deduct a smaller amount if they make between $61,000 and $71,000 per year,
  • may not deduct any portion of their contribution if they make more than $71,000 per year.

Married Filing Jointly:

  • may deduct up to the full $5,500 limit if they make less than $98,000 per year,
  • may deduct a smaller amount if they make between $98,000 and $118,000 per year,
  • may not deduct any portion of their contribution if they make more than $118,000 per year.

Married filing separately:  deduction phases out between $0 and $10,000.

  • may deduct a smaller amount if they make between $0 and $1,000 per year,
  • may not deduct any portion of their contribution if they make more than $10,000 per year.

If one spouse is covered by a workplace plan, but the other spouse is not, their traditional IRA contributions lose their deductibility between $183,000 and $193,000 per year (up from 2015.)

Roth IRA Contributions

Because Roth IRA contributions are not tax-deductible, there is no deductibility limit for Roth IRA contributions.  However, higher income earners may be limited in how much they can contribute to their account.

Single/Head of Household:  

  • may contribute to the full $5,500 limit if they make less than $117,000 per year,
  • may contribute a smaller amount if they make between $117,000 and $132,000 per year,
  • may not contribute to a Roth IRA if they make more than $132,000 per year.

Married Filing Jointly:

  • may contribute to the full $5,500 limit if they make less than $184,000 per year,
  • may contribute a smaller amount if they make between $184,000 per year and $194,000 per year,
  • may not contribute to a Roth IRA if they make more than $194,000 per year.

Married Filing Separately:

  • may contribute a smaller amount if they make between $0 and $10,000 per year,
  • may not contribute to a Roth IRA if they make more than $10,000 per year.

IRAs are one of the best ways to save for retirement because of the tax benefits associated with these accounts.  If you’re not currently contributing to an IRA, start one soon.  Even a little bit adds up, and if you are able to slowly increase your contributions, you can build some significant assets to help pay for the retirement that you want.

About the Author

Kate Horrell
Kate Horrell is a military financial coach, mom of four teens, and Navy spouse. She has a background in taxes and mortgage banking, and a trove of experience helping other military families with their money. Follow her on twitter @realKateHorrell.