Question: If you reach $2,000 in your Individual Retirement Account (IRA), are you allowed any more deposits, or do you have to stop for the year?
And please explain if, starting in 1997, non-working spouses are allowed the $2,000 deduction? - Mrs. E.B. in Harrison.
Answer: Cynthia Kamuf, a certified financial planner with S.G. Donahue & Co. Inc. in Cincinnati, says contributions to IRAs are limited to $2,000 (or 100 percent of your taxable compensation, whichever is less) each year. In addition, for taxable years before Jan. 1, 1997, contributions of up to $250 were allowed for a spousal IRA, usually for a non-working spouse.
The regular and spousal contributions could be allocated between the IRAs of the wage earner and the spouse in any manner, not to exceed a $2,000 deposit to either IRA. Contributions made in excess of the limit must be refunded by the date your tax return is due (including extensions), or a 6 percent penalty will be incurred annually until the money is distributed.
Rollovers or transfers from other IRAs or qualified plans are not included in this limitation but might be subject to other rules. If the IRA is part of an employer-sponsored Simplified Employee Pension (SEP IRA) program, higher contribution limits might apply.
The IRA owner must be under age 7012 at the end of the calendar year to make an IRA contribution. The deposit must be made by the due date of your tax return (not including extensions). While you might be able to contribute as much as $2,000, the full amount might not be deductible on your tax return. Your and your spouse's level of income and participation in a qualified retirement plan will determine the deductible amount.
Effective Jan. 1, 1997, the limit on spousal contributions was increased from $250 to $2,000. Please note that the spouse must be non-working (has no taxable income) or elect to be treated as having no taxable income, and the couple must file a joint tax return to have a spousal IRA.
Also note that the contribution for a spouse working part-time and earning less than $2,000 would be limited to 100 percent of the spouse's taxable compensation if he or she did not elect to be treated as having no taxable compensation for this purpose.
Addressing these issues with your financial planner or tax adviser will determine the allowable contribution and the deductible amount.
You also might want to review Internal Revenue Service Publication 590 to help you understand the IRA rules and IRS Publication 553 to help you understand the recent tax law changes. For copies of the publications, contact the IRS at 1-800-829-4477, or call your district IRS office.
Readers should consider the advice from the Money Panel as general information only. Investors should seek the help of professionals on questions regarding their own portfolios because circumstances might vary.
- Compiled by Perry Brothers
