IRA Types

There are several types of IRAs including the traditional IRA (the deductible IRA and deductible spousal IRA), the nondeductible IRA, and the Roth IRA. An IRA can be set up with an insurance company, bank, or investment company.

Traditional IRAs

All earnings on traditional IRAs are tax-deferred, meaning taxes on earnings are not paid until you withdraw your money. You must begin making withdrawals from your IRA by age 70 ½.

• Deductible IRA: If you (or you and your spouse) are employed but not covered by an employer-sponsored retirement plan, you both may contribute up to the maximum each year and deduct your contribution from your taxable income. The contribution limit is rising from $5,500 to $6,000 in 2019 for those under age 50. The limit is $7,000 for those age 50 and over (up from $6,500 in 2018). In a one-income family, the unemployed spouse also may contribute to a spousal IRA.
  
  If you (or you and your spouse) are covered by an employer-sponsored retirement plan, you still may be able to make deductible contributions to an IRA based on your modified adjusted gross income (AGI). For single taxpayers, the limit is rising from $63,000 to $64,000 in 2019, with a partial deduction available for modified AGIs up to $74,000 (up from $73,000 in 2018). For married couples, the combined modified AGI limit for tax-deductible contributions is rising from $101,000 to $123,000 in 2019; a partial deduction can be taken for modified AGIs up to $123,000 (up from $121,000 in 2018).

• Deductible Spousal IRA: Married couples with one employed spouse may each contribute up to $6,000 in 2019 (up from $5,500 in 2018) or $7,000 if age 50 or older (up from $6,500 in 2018) to an IRA as long as the employed spouse earns at least as much as their combined contributions.
  
  If you work, but only your spouse is covered by an employer-sponsored retirement plan, you may qualify for a full IRA tax deduction if your joint modified AGI is below $193,000 in 2019 (up from $189,000 in 2018). A partial deduction applies for a joint modified AGI between $193,000 and $203,000 in 2019 (up from $189,000 to $199,000 in 2018).

Nondeductible IRAs

Taxpayers who exceed the income limits for the deductible IRA (and the Roth IRA, discussed next) can contribute up to $6,000 in 2019 (or $7,000 if age 50 or older) to a nondeductible IRA (up from $5,500 and $6,500 in 2018). While contributions cannot be deducted from income for tax purposes, earnings are not taxed until they are withdrawn.

Roth IRA

Roth IRAs allow people within certain income levels to make non-deductible contributions. Your earnings will not be taxed at the time you withdraw your funds if they are held for at least five years and you are age 59 ½ or older when the money is withdrawn. (Unlike traditional IRAs, distributions do not have to begin at age 70 ½.)

The limit for a Roth IRA, if you are single or head of household, is rising from $5,500 $6,000 in 2019 ($7,000 if over age 50, up from $6,500 in 2018) if your income does not exceed $122,000 (up from $120,000 in 2018). A partial contribution is available for incomes up to $137,000 (up from $135,000). If you are married with a combined income up to $193,000 (up from $189,000 in 2018), you are eligible to contribute to a Roth IRA. Married couples may make a partial contribution with a combined income up to $203,000. (up from $199,000 in 2018). Note: your contributions to a traditional IRA will reduce the amount that you may contribute to a Roth IRA.

November 2018