The U.S. Congress originally authorized individual retirement accounts (IRAs) as a means for self-employed taxpayers to set aside funds for their retirement in a tax-advantaged, trustee-based account. Congress later expanded the availability of IRAs to most taxpayers who have earned income. Contributions to Roth IRAs, unlike contributions to traditional IRAs, are not deductible. Not all people are qualified to contribute to a non-deductible IRA.
You can contribute to a non-deductible IRA if you had earned income during the tax year. The Internal Revenue Service considers any compensation you receive from working to be earned income. Earned income may be employee compensation or self-employment compensation. Earned income includes compensation received in the form of wages, salaries, tips, commissions, bonuses, and strike benefits. It also includes irregular income from such activities as babysitting or mowing lawns.
Modified Adjusted Gross Income
You can contribute to a non-deductible IRA provided you had earned income and your modified adjusted gross income (MAGI) did not exceed the maximum limit for your filing status. The maximum MAGI for taxpayers who filed as married filing jointly or qualifying widow(er) was $177,000 as of the 2010 tax year. The maximum for those filing as single or head of household was $120,000. The maximum for those filing as married filing separately and who did not live with a spouse at any time during the year was $120,000. The maximum MAGI for those who filed as married filing separately, and who lived with a spouse at any time during the year, was $10,000.
You can make contributions to a non-deductible IRA provided you had earned income and did not have MAGI in excess of the maximum allowed, but only up to the maximum contribution allowed by current tax law. You cannot contribute more than 100 percent of your earned income for the tax year. You cannot contribute more than $5,000 for a single tax year if you are less than 50 years of age. You cannot contribute more than $6,000 if you are 50 years of age or older, as of the 2010 tax year.
Anyone, at any age, can contribute to a non-deductible IRA, provided they meet the requirements of earned income and modified AGI. Unlike traditional deductible IRAs, which prevent taxpayers from contributing after they reach 70 1/2 years of age, there is no age limit for making contributions to a non-deductible IRA.
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