2019 IRA Contribution and Deduction limits

Today we discuss the 2019 contribution limits, as well as the deductible limits for a traditional IRA. We’ll show how to figure the math if you’re in the phase-out limits, using the IRS website

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IRA Deduction and Contribution Limits 2019: Roth vs Traditional

Individual Retirement Accounts (IRAs) are popular investment vehicles for individuals looking to save for retirement. IRAs offer tax advantages, and account holders can choose between two main types: Roth and Traditional IRAs. Both options have their unique benefits, and it is essential to understand the IRA deduction and contribution limits for 2019 when deciding which type suits your circumstances best.

IRA Deduction and Contribution Limits for 2019

The IRS sets specific rules and limits each year regarding IRA contributions and deductions. For 2019, the contribution limit for both Roth and Traditional IRAs is $6,000 for individuals under the age of 50. However, individuals aged 50 and older can contribute an additional $1,000 as a catch-up contribution, bringing their total allowable contribution to $7,000. These limits apply to the total combined funding towards all IRAs within a single tax year.

The IRA deduction limits, on the other hand, differ depending on the type of IRA and an individual’s filing status. For tax year 2019, if you are covered by a retirement plan at work, there is a phase-out range based on modified adjusted gross income (MAGI) that determines your eligibility for an IRA deduction. Below are the ranges for both Roth and Traditional IRAs:

1. Traditional IRA Deduction Limits
– Single or Head of Household: If MAGI is $64,000 or less, you can claim a full deduction; between $64,000 and $74,000, a partial deduction; and $74,000 or more, no deduction.
– Married Filing Jointly: If MAGI is $103,000 or less, a full deduction is allowed; between $103,000 and $123,000, a partial deduction; and $123,000 or more, no deduction.
– Married Filing Separately: A partial deduction is allowed for MAGI up to $10,000, but no deduction is available for MAGI exceeding that.

2. Roth IRA Contribution Limits
– Single or Head of Household: If MAGI is $122,000 or less, a full contribution is allowed; between $122,000 and $137,000, a partial contribution; and $137,000 or more, no contribution is permitted.
– Married Filing Jointly: If MAGI is $193,000 or less, a full contribution is allowed; between $193,000 and $203,000, a partial contribution is allowed; and $203,000 or more, no contribution is permitted.
– Married Filing Separately: A partial contribution is allowed for MAGI up to $10,000, but no contribution is available for MAGI exceeding that.

Roth vs Traditional IRA

Understanding the differences between Roth and Traditional IRAs is crucial in determining which option is the most suitable for your retirement savings.

1. Tax Treatment:
– Traditional IRA: Contributions are typically tax-deductible in the year they are made, potentially reducing your taxable income. However, taxes are due upon withdrawal during retirement.
– Roth IRA: Contributions to a Roth IRA are made with after-tax dollars, meaning they are not tax-deductible. However, qualified withdrawals, including earnings, are tax-free in retirement.

2. Required Minimum Distributions (RMDs):
– Traditional IRA: Starting at age 70 ½, the IRS requires individuals to take annual distributions from their Traditional IRAs, which are subject to income tax.
– Roth IRA: Roth IRAs do not have RMDs during the account holder’s lifetime. This allows for more flexibility in managing your retirement funds.

3. Eligibility and Age Restrictions:
– Traditional IRA: There are no income restrictions for contributing to a Traditional IRA; however, there is an age limit for making contributions, which is 70 ½ years.
– Roth IRA: Roth IRA contributions have income limits, and they are not available for high-income earners. However, there are no age restrictions for contributions.

It’s important to consult with a financial advisor or tax professional to determine which type of IRA is best suited for your individual situation. Factors such as current income, projected retirement income, and tax strategies should all be considered to make an informed decision.

In conclusion, the IRA deduction and contribution limits for 2019 play a significant role in determining your retirement savings strategy. Carefully analyze your income, tax situation, and objectives to decide between Roth and Traditional IRA options. Properly saving for retirement and taking advantage of tax advantages will help you build a more secure future.