Simple Questions to Make Sure You Are Eligible to Make a 2013 IRA or Roth IRA Contribution
If you put money into an IRA or Roth IRA earlier this year for 2013 or plan to do so before the April 15, 2014 contribution deadline, it’s important to double check and make sure you are actually able to do so. Any amount you contribute to an IRA/Roth IRA that isn’t allowed to be there will cost you a 6% penalty if it is not timely removed by October 15, 2014. Worse yet, that 6% penalty is not a one-time penalty. Every year the errant contribution remains in the account, the 6% penalty is assessed.
Traditional IRA Contributions
If you have already made/plan to make a traditional IRA contribution for 2013, there are two important questions you need to ask yourself.
First, ask yourself, “Will I have any compensation for 2013?” The answer to this question must be “yes” in order for you to make a traditional IRA contribution. Compensation is a term used to describe only certain types of income. If you have compensation, chances are it’s from earned income, such as W-2 wages or self-employment income, but it can also be from other sources, such as taxable alimony.
The second question to ask yourself to make sure you can make a 2013 traditional IRA contribution is, “Will I be younger than age 70 ½ on December 31, 2013?” Again, the answer must be “yes.” If you are 70 ½ or older at the end of this year, you are prohibited from making a traditional IRA contribution for 2013. However, if you answered yes to question one, but no to question two, all may not be lost. You may be able to make a Roth IRA contribution.
Roth IRA Contributions
There are also two important questions to ask yourself if you have already made/plan to make a Roth IRA contribution for 2013. The first question, which should sound familiar is, “Will I have any compensation for 2013?” Note that this question is exactly the same as the first question to verify you can make a traditional IRA contribution. And just as is the case for traditional IRAs, the answer to this question must be “yes” if you want to make a Roth IRA contribution.
The second question to ask yourself if you want to make sure you can make a valid 2013 Roth IRA contribution is, “Will my income be below the applicable income threshold?” Here again, the answer must be “yes.” The precise threshold you must be under in order to make a 2013 Roth IRA contribution varies depending on your filing status. To see what your applicable threshold is, use the chart below. Also note that income, for this purpose, is modified adjusted gross income (MAGI). To see how MAGI is calculated you can click here and go to page 62 of IRS Publication 590.
|Tax Filing Status||2013 MAGI|
|Married Filing Jointly||$178,000 - $188,000|
|Married Filing Separately*||$0 - $10,000|
*Married couples filing separately can determine their Roth IRA contribution eligibility using the “single” status, but ONLY if they did not live together for the ENTIRE year.
- By Jeffrey Levine and Jared Trexler