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For more details, call one of our IRA Specialists at 816-763-4020.

This article is not intended as tax advice. Contact a tax professional.

1. What are the IRA contribution limits?
2. Why should I consider contributing the maximum amount to my IRA?
3. Do I have to make a lump-sum IRA contribution each year?
4. What determines if I’m eligible to contribute to an IRA?
5. Can my spouse and I both contribute to an IRA?
6. Can I contribute to both a traditional and Roth IRA?
7. What are IRA "catch-up" contributions?
8. What determines if my traditional IRA contributions are tax-deductible?
9. Do I qualify for a tax credit for my IRA contributions?
10. Can I contribute to an IRA if I have a retirement plan with my employer?
11. Is it too late to contribute to my IRA for last year?

Q. What are the IRA contribution limits?
A. For tax years 2003 and 2004, the annual contribution limit is $3,000 in a traditional or Roth IRA or a combination of both. For tax years 2005 though 2007, the annual contribution limit is $4,000, and it increases to $5,000 for tax years 2008 to 2010. The annual contribution limit returns to $2,000 in 2011 and thereafter.

Individuals who have reached age 50 by December 31 have a higher contribution limit. For tax years 2003 through 2005, this increases the limit by $500. From 2006 through 2010, the limit increases by $1,000. Older individuals do not have a higher annual contribution limit in 2011 and thereafter.

You can also save up to $2,000 per child per year in after-tax dollars in a Coverdell Education Savings Account (ESA).

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Q. Why should I consider contributing the maximum amount to my IRA?
A. You can contribute any amount up to the maximum limit. But the highest allowable contribution could make a big difference in your retirement funding.

For example: If you contribute $3,000 instead of $2,000 each year from 2003 through 2010, and your IRA earns a 5% return, you’d have an additional $10,000 more in eight years.*

* Contribution limit will revert back to $2,000 after 2011 unless Congress acts to extend it.

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Q. Do I have to make a lump-sum IRA contribution each year?
A. You can, but it might be a better idea to make your IRA contributions through payroll deduction at the credit union. That lets you spread out your payments over the year and can help with your budgeting.

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Q. What determines if I'm eligible to contribute to an IRA?
A. Most people can contribute to an IRA if they earn compensation or are filing jointly with a spouse who earns compensation.

For a traditional IRA: You can’t make regular contributions to a traditional IRA for the year in which you attain age 70½ or any later year. There are no income limits on your ability to contribute to a traditional IRA, but your income may affect your ability to deduct your contributions.

For a Roth IRA: There are no age limitations on making regular contributions to a Roth IRA, but there are income limits. Assuming you have sufficient compensation, you can contribute up to the annual contribution limit if your modified adjusted gross income (MAGI) is less than $150,000 if you file a joint return or $95,000 if you are single. You cannot make a regular contribution to a Roth IRA if your MAGI is more than $160,000 and you file a joint return or $110,000 if you are single. The maximum contribution is phased out gradually between these income levels.

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Q. Can my spouse and I both contribute to an IRA?
A. Yes. The maximum contribution for each of you cannot be more than the annual contribution limit or the amount of your compensation whichever is less. You will need your own IRA (joint IRAs are not allowed by tax laws). If you don’t earn compensation but your spouse does, you may be eligible to contribute to an IRA based on your spouse’s earnings.

However, the income rules still apply for a Roth IRA. Your modified adjusted gross income (MAGI) can’t be over $150,000 as a joint tax filer. You can make smaller contributions with a MAGI up to $160,000 as a joint tax filer.

For a traditional IRA, you can’t make contributions for the year during which you reach age 70½ or thereafter. Also, if you or your spouse participate in a qualified retirement plan, your deduction of regular contributions is subject to income limits.

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Q. Can I contribute to both a traditional and Roth IRA?
A. Yes. But the total of the contributions to traditional and Roth IRAs cannot exceed your compensation or the annual contribution limit, whichever is less. However, you can make an annual contribution of $2,000 to a Coverdell Education Savings Account (ESA), in addition to your IRA contributions.

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Q. What are IRA "catch-up" contributions?
A. These are special increases in the annual contribution limits for people who have reached the age of 50 by December 31. For these people, the annual contribution limit is increased by $500 for the 2003 through 2005 tax years, and it is increased by $1,000 for the 2006 through 2010 tax years.

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Q. What determines if my traditional IRA contributions are tax-deductible?
A. It depends on your marital status, income, and if you or your spouse participate in an employer retirement plan. The dollar amounts indicated below are for 2003, but they will increase until 2007.

If you are married, you can deduct the full amount of your regular contributions if:

• Neither you or your spouse participate in an employer retirement plan, or
• You participate in an employer retirement plan, but your modified adjusted gross income (MAGI) is $60,000 or less, or
• Only your spouse participates in an employer retirement plan, and your MAGI is $150,000 or less.

If you are single, you can deduct the full amount of your regular contributions if:

• You do not participate in an employer retirement plan, or
• You participate in an employer retirement plan, but your MAGI is $40,000 or less.

If your income is above the limits, you may be able to make tax-deductible contributions of less than the maximum amount that you can contribute.

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Q. Do I qualify for a tax credit for my IRA contributions?
A. You can qualify for a non-refundable tax credit for contributions to your IRA if you are:

• A head-of-household tax filer with a modified adjusted gross income (MAGI ) of $37,500 or less, or
• A single tax filer with a MAGI of $25,000 or less,
• or A joint tax filer with a MAGI of $50,000 or less.

The maximum credit is 50% of the amount contributed up to $2,000, and the maximum credit is only available if MAGI is no more than 60% of the dollar amounts listed above. Smaller credits are available between 60% and 100% of the above dollar amounts. This credit is only available for tax years through 2006.

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Q. Can I contribute to an IRA if I have a retirement plan with my employer?
A. Yes. You can still contribute to a traditional or Roth IRA or to a Coverdell Education Savings Account (ESA). Your participation in your employer’s retirement plan doesn‘t change how much you can contribute to an IRA. However, it could affect your eligibility for deducting your contributions to a traditional IRA on your tax return.

But as long as you are under age 70½ and earning compensation, you can make non-deductible contributions to a traditional IRA and take advantage of the tax-deferred earnings on your account.

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Q. Is it too late to contribute to my IRA for last year?
A. No. If like most people, you are a calendar year taxpayer, you can make a regular contribution for last year to your traditional or Roth IRA any time before April 15 of this year. And you can make a contribution for this year any time between now and April 15 of next year.

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This article is not intended as tax advice. Contact a tax professional.

CSD Credit Union
8510 E Bannister Road ● Kansas City, MO 64134 ● 816-763-4020