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CONTRIBUTION LIMITS The only requirement
for opening an IRA is having earned income - money you get for work you do. Your
total annual contribution is limited to $6,000 in 2019, whether you put it all in
one account or divide it between a traditional IRA and a Roth. Any amount you earn
qualifies, and you can contribute as much as you want, up to the annual cap. But
you can't contribute more than you earn. For example, if you earn $1,800 in a year,
that's how much you can put in. And whether you earn $6,000 or $350,000, the top
limit is the same.
SPOUSAL ACCOUNTS If your husband
or wife doesn't work, but you do, you can contribute up to $6,000 in 2019 to a separate
spousal account in your spouse's name. The advantage for the nonworking partner
is being able to build an individual retirement fund.
WHICH IRA FOR YOU? If you qualify,
for the two types of IRAs with income restrictions, based on your modified adjusted gross income
(AGI), you'll have to choose among a traditional deductible IRA, a traditional
nondeductible IRA, or a Roth IRA.
The traditional deductible IRA has the strictest income limits, and the traditional
nondeductible has none at all. The Roth is in between.
In 2019, for example, you can deduct all of your IRA contribution if you're single,
and your AGI is less than $64,000, even if you have a retirement plan where you
work. You can deduct a gradually decreasing portion as your income gets closer to
$74,000 and nothing if it's above $74,000. You can always deduct the full amount
of your contribution if you're not covered by a retirement plan at your job.
You're eligible for a full Roth contribution if you're single and your AGI is less
than $122,000. With an AGI between that amount and $137,000, you can put a gradually
declining portion of your contribution into a Roth and the balance into a traditional
IRA if you wish.
For a married couple filing a joint return, the income limits for a deductible traditional
IRA begin at $103,000, and are phased out at $123,000 for 2019. Those amounts are
scheduled to increase over time. Either of you can deduct your contribution
if you have no retirement plan of your own at work. But if your spouse has a plan,
the amount you can deduct is reduced gradually if your joint income is over $193,000,and
eliminated if it's over $203,000. Each of you qualifies to contribute the full $6,000
to a Roth IRA if your joint AGI is $193,000 or less, phased out up to $203,000.
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CATCHING UP If you're 50 or older,
you can make catch-up contributions to your IRA each year. In 2019, you can add
an extra $1,000 a year to your account, on top of the standard contribution cap
for the year. You're eligible whether or not you've contributed the maximum in earlier
years.
IT'S YOUR ACCOUNT It's easy to open an IRA. All you
do is fill out a relatively simple application provided by the financial institution
you choose.
IRAs are self directed, which means that you decide how to invest the money, and
you're also responsible for following the rules that govern the accounts. Basically,
that means putting in only the amount you're entitled to each year. You must also
report your annual contribution to the IRS, on your basic return if it's deductible
and on Form 8606 if it's not.
You can invest your IRA money in either a
fixed annuity or
variable annuity. You can move money among the separate account
funds within your IRA without owing income tax on any gains. But there may be a
limit on the number of exchanges you can make without a fee, and there may also
be a charge for moving money out of a fixed annuity or a fixed account within your
variable annuity.
WHEN TO CONTRIBUTE You have until
April 15 — the day tax returns are due—to open an IRA and make the deposit
for the previous tax year.
You can put money into your IRA in a lump sum, or spread your contribution out over
up to 15 months. You may put in the whole amount the first day you can, January
2 of the tax year you're making the contribution for. Or, if you're like most people,
you're more apt to make the deposit on the last possible day.
The most practical solution may be weekly or monthly contributions through payroll
deductions. There are no guarantees when you invest this way, any more than there
are when you invest a lump sum. You could lose money, especially in the short term.
But if your investments do well, adding to them regularly can give your IRA value
a real boost.
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