IRA’s and Roth IRA’s are popular retirement savings options. However, there are limitations to the amount that can be contributed each year. There is a maximum limitation set by the government each year. In addition, there are other factors that may reduce the amount set by the government. These factors include wages, self‐employment earnings, age, adjusted gross income and if you are already enrolled in a plan provided by your employer. Below is an example of a limitation.
A person cannot contribute to an IRA or a Roth IRA unless they have “Earned Income”. The amount contributed to the IRA or Roth IRA cannot exceed the smaller of the earned income or the annual limit set by the government. The two main types of “Earned Income” are Wages reported on a Form W2 and Self‐employment income reported on form 1040.
As an example, the maximum contribution to an IRA or Roth IRA for a person under the age of 50 at the end of the 2019 tax year is $6000, if all other requirements are met. However, if the person’s combined total of W2 wages and Self‐employment income is $4000, then the contribution is limited to $4000 for the year.
A person who reaches the age of 70 ½ during a tax year cannot contribute to an IRA, they, however, may contribute to a Roth IRA if they have earned income for the same year.
There are many items to be considered before making a contribution. Please contact our office so that we can develop the best scenario for your retirement contribution.