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How to Make a Legit $28,000 IRA Contribution
A colleague of mine said a 60-year-old couple who is a client of his just made a $28,000 IRA contribution. Is this some kind of new rule? I thought the maximum annual contribution was $6,000, with a potential additional $1,000 catch-up contribution for someone age 50 and over?
Highlights of Recommendations
- A $28,000 IRA contribution for the couple is possible, courtesy of a combination of several IRS rules covering
- carry-back and current year contributions,
- spousal contributions and
- catch-up contributions.
- From January 1, 2021 to May 17, 2021[1], it is potentially possible for a traditional or Roth IRA owner age 50 and over to make a $14,000 contribution: $7,000 as a 2020 carry-back contribution and $7,000 as a 2021 current-year contribution. That means a married couple filing a joint tax return could potentially make a $28,000 IRA contribution, with $14,000 going to each spouse’s respective IRA (either Roth or Traditional).
- When making the contributions it is important to clearly designate to the IRA administrator that a portion is a carry-back contribution for 2020 and a portion is a 2021 current-year contribution in order to avoid having the full amount treated as a current-year contribution and, subsequently, an excess contribution for 2021.
- Such a large combined contribution would only be possible if
- The couple had not previously made a 2020 contribution to a traditional or Roth IRA,
- Each spouse was age 50 or older as of 12/31/2020,
- The couple has earned income for 2020 and 2021 to support the contributions, and
- For a Roth IRA contribution, the couple’s income is under the modified adjusted gross income (MAGI) limits for Roth IRA contribution eligibility (see below).
- Whether the traditional IRA contributions would be tax deductible depends upon “active participation” of either spouse in a workplace retirement plan[2] and the couple’s MAGI.
- Please see the applicable MAGI ranges in the following chart.
| Traditional IRA Eligibility for Deductible Contributions | ||
| Taxpayer Category | 2021 MAGI Phase-Out Ranges | 2020 MAGI Phase-Out Ranges |
| Married active participant filing a joint income tax return | $105,000-$125,000 | $104,000-$124,000 |
| Single active participant | $66,000-$76,000 | $65,000-$75,000 |
| Married active participant filing separate income tax return | $0-$10,000 | $0-$10,000 |
| Spouse of an active participant | $198,000-$208,000 | $196,000-$206,000 |
|
Roth IRA Contribution Eligibility |
||
| Taxpayer Category | 2021 MAGI Phase-Out Ranges | 2020 MAGI Phase-Out Ranges |
| Married filing a joint income tax return | $198,000-$208,000 | $196,000-$206,000 |
| Single individuals | $125,000-$140,000 | $124,000-$139,000 |
| Married filing separate income tax return | $0-$10,000 | $0-$10,000 |
Conclusion
The deadline for making 2020 traditional or Roth IRA contributions is May 17, 2021. That means there is a window of opportunity that allows eligible couples to double up on IRA contributions (for 2020 as a carry-back contribution and one for 2021 as a current-year contribution) to the tune of $28,000.
[1] Usually, April 15th, but the IRS extended the 2020 tax filing deadline to May 17, 2021
[2] See Active Plan Participant and IRA Contributions
