As I’ve written about in the past, an IRA is a great way to save for retirement. If you qualify, you can stash money away for retirement, deduct your contributions from your taxable income, and let your nest egg grow tax-deferred until you take it out during retirement.
The rules on contribution limits and whether your contributions are tax deductible, however, can be really confusing. What some fail to realize is that anybody with earned income can contribute to a traditional IRA. However, your contributions may not be deductible.
When it comes to whether IRA contributions are deductible, there are very specific eligibility requirements based on factors such as your income and the retirement plans you or your spouse have at work. To figure out these limits, we need to look at several factors:
- Are you are contributing to a traditional IRA, Roth IRA, or both?
- Will you be 50 years of age or older by the end of 2012?
- Your modified adjusted gross income (MAGI)
- Your taxable compensation
- Are you or your spouse covered by a retirement plan at work?
With these factors in mind, let’s take a look at the IRA contribution and deduction rules for 2012.
2012 Traditional IRA Contribution Limits
The 2012 traditional IRA contribution limits did not change from 2011. The maximum amount you’re allowed to contribute is $5,000. If you’re 50 or older by the end of 2012 you may also be eligible for the additional “catch up contribution”. The “catch up contribution” allows for an additional $1,000 (for a total of $6,000).
The maximum amount you are able to contribute can be split between a Roth IRA and traditional IRA, but it still can’t exceed $5,000 ($6,000 if you’re 50 years old or older). We have taken the current figures provided by the IRS and combined them with the numbers over the last several years to give you a comparison. As you can see nothing has changed since 2008.
Tax Year | Regular Contribution Limit | Catch-up Contribution Limit for those 50 & older |
|---|---|---|
| 2012 | $5,000 | $1,000 |
| 2011 | $5,000 | $1,000 |
| 2010 | $5,000 | $1,000 |
| 2009 | $5,000 | $1,000 |
| 2008 | $5,000 | $1,000 |
| 2007 | $4,000 | $1,000 |
| 2006 | $4,000 | $1,000 |
There are a few things to remember when it comes to these limits.
- The contribution limits are combined and you must add together a traditional and Roth IRA contributions, even if you have multiple IRA accounts.
- You can’t contribute more than you make. So, if your taxable compensation in 2012 falls below the contribution limits, then the amount you make becomes your contribution limit.
- The maximum contribution to a Roth IRA and the maximum deductible contribution to a traditional IRA may be reduced depending upon your modified adjusted gross income (modified AGI).
Are Your Contributions Deductible?
Here’s where things get a bit more complicated. In 2012, the modified adjusted gross income or AGI limits for deductible IRAs were raised. We have two sets of tables below to help you wade through the details. The first table is for those that are covered by a retirement plan at work and the second table is for those who are not covered.
Since I’m not a tax expert, I refereed to the IRS website for the relevant information needed to create the tables. I’ve included links to the IRS source pages so that you can review the details for yourself.
2012 IRA Contribution and Deduction Limits – Covered by Employer
| Single or Head of Household | |||
| Modified AGI | $58,000 or less | More than $58,000, but less than $68,000 | $68,000 or more |
| Deduction | Full deduction up to the amount of your contribution limit | A partial deduction | No deduction |
| Married Filing Jointly or Qualifying Widow(er) | |||
| Modified AGI | $92,000 or less | More than $92,000, but less than $112,000 | $112,000 or more |
| Deduction | Full deduction up to the amount of your contribution limit | A partial deduction | No deduction |
| Married Filing Separately | |||
| Modified AGI | Less than $10,000 | $10,000 or more | |
| Deduction | A partial deduction | No deduction | |
2012 IRA Contribution and Deduction Limits – Not Covered by Employer
| Single, Head of Household, or Qualifying Widow(er) | |||
| Modified AGI | Any Amount | ||
| Deduction | Full deduction up to the amount of your contribution limit | ||
| Married Filing Jointly or Separate and spouse is NOT covered | |||
| Modified AGI | Any Amount | ||
| Deduction | Full deduction up to the amount of your contribution limit | ||
| Married Filing Jointly - spouse IS covered by a plan at work | |||
| Modified AGI | $173,000 or less | More than $173,000 but less than $183,000 | $183,000 or more |
| Deduction | A partial deduction | A partial deduction | No deduction |
| Married Filing Seperately - spouse IS covered by a plan at work |
|||
| Modified AGI | less than $10,000 | $10,000 or more |
|
| Deduction | A partial deduction | No deduction | |
If you’d like to open an IRA account, visit Mint.com to see several IRA options.
Rob Berger
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Published or updated October 28, 2012.
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