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How is it possible to make a $27,000 IRA contribution by April 15, 2019?
“A colleague of mine said a 60-year-old client couple of his just made a $27,000 IRA contribution. How is that possible without creating an excess contribution?”
ERISA consultants at the Retirement Learning Center Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare. We bring Case of the Week to you to highlight the most relevant topics affecting your business. A recent call with a financial advisor from Massachusetts is representative of a common inquiry related to IRA contributions.
Highlights of the Discussion
There is a window of opportunity from January 1 through April 15, 2019, for a married couple to be able to contribute up to $27,000 at one time to their IRAs. Sizeable contributions like this are possible each year during tax season because of the carry-back and current-year IRA contribution rules, combined with the catch-up contribution limits for those ages 50 or more.
Here’s how it breaks down. From January 1 to April 15, 2019, it is potentially possible for a traditional or Roth IRA owner age 50 and over to contribute $6,500 as a 2018 carry-back contribution, and $7,000 as a 2019 current year contribution, for a total of $13,500.[1] That means a married couple filing a joint tax return could potentially make combined IRA contributions totaling $27,000, with $13,500 going to each spouse’s respective IRA.
Please be aware of the caveats. Such a large contribution would only be possible if the couple
- Had not previously made 2018 contributions to traditional or Roth IRAs;
- Each spouse was age 50 or greater as of December 31, 2018;
- The couple has earned income to support the contributions;
- For a Roth IRA contribution, had modified adjusted gross income (MAGI) under the limits for Roth IRA contribution eligibility; and
- For a traditional IRA contribution, was under age 70½. (Whether a couple’s traditional IRA contributions would be tax deductible depends upon the couple’s MAGI and participation in a retirement plan at work. Please see the applicable MAGI ranges below.
| Roth IRA Contribution Eligibility 2018 and 2019 | ||
| Taxpayer Category | 2018 MAGI Phase-Out Ranges | 2019 MAGI Phase-Out Ranges |
| Married filing jointly | $189,000-$199,000 | $193,000-$203,000 |
| Single individuals | $120,000-$135,000 | $122,000-$137,000 |
| Married filing separately | $0-$10,000 | $0-$10,000 |
| Traditional IRA Eligibility for Deductible Contributions | ||
| Taxpayer Category | 2018 MAGI Phase-Out Ranges | 2019 MAGI Phase-Out Ranges |
| Married active participant filing jointly | $101,000-$121,000 | $103,000-$123,000 |
| Single active participant | $63,000-$73,000 | $64,000-$74,000 |
| Married active participant filing separately | $0-$10,000 | $0-$10,000 |
| Spouse of an active participant | $189,000-$199,000 | $193,000-$203,000 |
When making IRA contributions during the period between January 1 and April 15th of a given year, it is important for an investor to clearly designate to the IRA trustee or custodian for what year a contribution is being made (e.g., what portion represents a carry-back contribution for the preceding year and what portion represents a current-year contribution) in order to avoid having the full amount treated as a current-year contribution and, subsequently, an excess contribution.
Conclusion
Because of the carry-back and current-year IRA contribution rules, there is a window of opportunity through April 15th that allows eligible investors to double up, seemingly, on IRA contributions. Investors interested in maximizing their contributions in this way should consult their tax advisors regarding their particular circumstances.
[1] For eligible individuals under age 50, the maximum IRA contribution limit is $5,500 for 2018 and $6,000 for 2019.
