If you contribute to a 401(k) type retirement account there is a limit on the amount you may add to your nest egg. If you are not yet fifty years old you may contribute up to $6,000. If you have attained age fifty you may contribute up to $7,000.
The other type of retirement account is an IRA or Individual Retirement Account. And yes, there are two types, Traditional and Roth
The Traditional IRA receives income that has not yet been taxed from the individual. Taxpayers under fifty years old may contribute $6,000 and for those of us over fifty years old, we may contribute up to $7,000, providing certain conditions are met. The IRS has placed a phaseout of these allowed deductions that is based upon your Adjusted Gross Income (AGI).
When a taxpayer is covered by an employer retirement plan the previously mentioned contribution amounts may be phased out, based upon the taxpayer’s income. For Single taxpayers the phaseout starts at an AGI of $65,000 and the allowed contribution falls to zero when AGI is $75,000 or greater. Joint return filers’ phaseout starts at an AGI of $104,000 and falls to zero when AGI is $124,000. For those Married filing separately the phaseout begins at $0 and then at $10,000 the allowed contribution is zero.
The Roth IRA receives income that has already been taxed and when taken out after reaching age 59½ there is no tax to pay! The IRS has placed a phaseout of these allowed deductions that is based upon your Modified Adjusted Gross Income (MAGI).
For Married filing jointly and qualified widowed taxpayers the phaseout starts at an AGI of $196,000 and the allowed contribution falls to zero when AGI is $206,000 or greater. For single, head of household or married filing separately (living apart from spouse) the phaseout range is $124,000 to $139,000. For those Married filing separately and lived with the spouse at any time during the tax year, the phaseout begins at $10 and then at $10,000 the allowed contribution is zero.