IRA account changes for 2013

The maximum amount that you can put into your IRA is increasing in 2013 from $5,000 to $5,500.  This holds true for Traditional IRAs and Roth IRAs.  The Catch-Up Contribution, for those over 50 years old, will remain the same at $1,000.

Earned income

In order to invest in an IRA you must have earned income.  People ask if they can count income they “earn” from investments, the answer is no.  Earned income is income earned from working.  If your income is less than $5,500 keep in mind you must have earned income to make a contribution , so you can only contribute $5,500 or 100% of earned income whichever is less.  Examples of earned income given on the irs.gov website are:

Earned Income:

  • Wages
  • Salary
  • Tips
  • Union strike benefits
  • Long-term disability benefits received prior to retirement age
  • Net earnings from self-employment

Income that is not Earned Income:

  • Pay received for work while an inmate in a penal institution
  • Interest and dividends
  • Retirement Income
  • Social Security
  • Unemployment benefits
  • Alimony
  • Child Support

Traditional IRA

Everyone with earned income can invest in a Traditional IRA.  However, not everyone can deduct the contribution that they make to a Traditional IRA.  There are IRA deduction phase-out limits for active participants in employer sponsored retirement plans, or if one person in a married couple is an active participant.  The phase-out limits are based on your tax filing status.

The way the phase-out works is you can deduct the full amount when your modified adjusted gross income falls below the low end of the phase-out.  You cannot deduct anything once your modified adjusted gross income hits the high end.  And you can deduct a pro rata portion when it falls in the middle range of the phase-out.

  • Single $59,000 to $69,000
  • Married Filing Jointly (for spouse covered by employer retirement plan) $95,000 to $115,000
  • Married Filing Jointly (for spouse that is not covered by employer retirement plan, but married to a covered spouse) $178,000 and $188,000

Roth IRA

Not everyone can make a Roth IRA contribution.  In order to make the full contribution your modified adjusted gross income must be below the phase-out threshold.  If your modified adjusted gross income hits the top of the phase-out range you cannot make a contribution at all.  If your modified adjusted gross income falls in the middle of the phase-out range you can make a pro rata contribution.

  • Single $112,000 to $127,000
  • Married Filing Joint $178,000 to $188,000

Many people have automatic investing set up so that they put a little each month into their IRA accounts.  If you do this, be sure to make the adjustment to increase the amount you are putting into your IRA account, you can put another $41.66 a month away in 2013.  Every little bit helps!

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