Publication 590 |
2000 Tax Year |
How Much Can Be Contributed?
As soon as you set up your traditional IRA, contributions can be
made to it through your chosen sponsor (trustee or other
administrator). Contributions must be in the form of money (cash,
check, or money order). Property cannot be contributed. However, you
may be able to transfer or roll over certain property from one
retirement plan to another. See the discussions of rollovers and other
transfers later in this chapter under Can I Move Retirement Plan
Assets?.
Contributions can be made to your traditional IRA for each year
that you receive compensation and have not reached age 70 1/2. For any year in which you do not work, contributions cannot be
made to your IRA unless you receive alimony or file a joint return
with a spouse who has compensation. See Who Can Set Up a
Traditional IRA?, earlier. Even if contributions cannot be made
for the current year, the amounts contributed for years in which you
did qualify can remain in your IRA. Contributions can resume for any
years that you qualify.
Limits and Other Rules
There are limits and other rules that affect the amount that can be
contributed. These limits and rules are explained below.
General limit.
The most that can be contributed for any year to your traditional
IRA is the smaller of the following amounts:
- Your compensation (defined earlier) that you must include in
income for the year, or
- $2,000.
Note.
This limit is reduced by any contributions to a section 501(c)(18)
plan (generally, a pension plan created before June 25, 1959, that is
funded entirely by employee contributions).
This is the most that can be contributed regardless of whether the
contributions are to one or more traditional IRAs or whether all or
part of the contributions are nondeductible. (See Nondeductible
Contributions, later.)
Contributions on your behalf to a traditional IRA reduce your limit
for contributions to a Roth IRA (see chapter 2).
Examples.
George, who is single, earns $24,000 in 2000. His IRA contributions
for 2000 are limited to $2,000.
Danny, a college student working part time, earns $1,500 in 2000.
His IRA contributions for 2000 are limited to $1,500, the amount of
his compensation.
Spousal IRA limit.
If you file a joint return and your taxable compensation is less
than that of your spouse, the most that can be contributed for the
year to your IRA is the smaller of the following two amounts:
- $2,000, or
- The total compensation includable in the gross income of
both you and your spouse for the year, reduced by the following two
amounts.
- Your spouse's IRA contribution for the year.
- Any contributions for the year to a Roth IRA on behalf of
your spouse.
This means that the total combined contributions that can be
made for the year to your IRA and your spouse's IRA can be as much as
$4,000.
Note.
This traditional IRA limit is reduced by any contributions to a
section 501(c)(18) plan (generally, a pension plan created before June
25, 1959, that is funded entirely by employee contributions).
Contributions to traditional IRAs reduce the limit for
contributions to Roth IRAs (see chapter 2).
Example.
Christine, a full-time student with no taxable compensation,
marries Jeremy during the year. For the year, Jeremy has taxable
compensation of $30,000. He plans to contribute (and deduct) $2,000 to
a traditional IRA. If he and Christine file a joint return, each can
contribute $2,000 for the year to a traditional IRA. This is because
Christine, who has no compensation, can add Jeremy's compensation,
reduced by the amount of his IRA contribution, ($30,000 - $2,000
= $28,000) to her own compensation (-0-) to figure her
maximum contribution to a traditional IRA. In her case, $2,000 is her
contribution limit, because $2,000 is less than $28,000 (her
compensation for purposes of figuring her contribution limit).
Community property laws.
Except as just discussed under Spousal IRA limit, each
spouse figures his or her limit separately, using his or her own
compensation. This is the rule even in states with community property
laws.
Age 70 1/2 rule.
Contributions cannot be made to your traditional IRA for the year
you reach age 70 1/2 or any later year.
Filing status.
Generally, except as discussed earlier under Spousal IRA
limit, your filing status has no effect on the amount of
allowable contributions to your traditional IRA. However, if during
the year either you or your spouse was covered by a retirement plan at
work, your deduction may be reduced or eliminated, depending on your
filing status and income. See How Much Can I Deduct?,
later.
Example.
Tom and Rosa are married and both are under age 70 1/2.
They both work and each has a traditional IRA. Tom earned $1,800 and
Rosa earned $48,000 in 2000. Even though Tom earned less than $2,000,
they can contribute up to $2,000 to his IRA for the year, under the
spousal IRA limit rule, if they file a joint return. They can
contribute up to $2,000 to Rosa's IRA. If they file separate returns,
the amount that can be contributed to Tom's IRA is limited to $1,800.
Contributions not required.
You do not have to contribute to your traditional IRA for every tax
year, even if you can.
Less than maximum contributions.
If contributions to your traditional IRA for a year were less than
the limit, you cannot contribute more in a later year to make up the
difference.
Example.
Justin earns $30,000 in 2000. Although he can contribute up to
$2,000 for 2000, he contributes only $1,000. Justin cannot make up the
$1,000 ($2,000 - $1,000) difference between his actual
contributions for 2000 and his 2000 limit by contributing $1,000 more
than the limit in 2001 or any later year.
More than maximum contributions.
If contributions to your IRA for a year were more than the limit,
you can apply the excess contribution in one year to a later year if
the contributions for that later year are less than the maximum
allowed for that year. See Excess Contributions, later.
More than one IRA.
If you have more than one IRA, the limit applies to the total
contributions made on your behalf to all your traditional IRAs for the
year.
The limit for contributions to Roth IRAs (see chapter 2)
is reduced
by contributions made on your behalf to your traditional IRAs.
Annuity or endowment contracts.
If you invest in an annuity or endowment contract under an
individual retirement annuity, no more than $2,000 can be contributed
toward its cost for the tax year, including the cost of life insurance
coverage. If more than $2,000 is contributed, the annuity or endowment
contract is disqualified.
Brokers' commissions.
Brokers' commissions paid in connection with your traditional IRA
are part of your contribution.
Trustees' fees.
Trustees' administrative fees are not subject to the
contribution limit.
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