IRA Eligibility

There are two types of IRAs to consider when discussing IRA Eligibility and the rules differ for both.

1. Traditional IRA Eligibility - are you eligible to make tax-deductible contributions?
2. Roth IRA Eligibility - are you eligible to make contributions?

Traditional IRA Eligibility

Contributions to a Traditional IRA are tax-deductible if you are eligible.  Later on, your withdrawals (both contributions and any future earnings on those contributions) from the Traditional IRA will be taxed at your ordinary income tax rates.  This is why a Traditional IRA is classified as a tax-deferred account.

Traditional IRA Eligibility depends on all three factors below:

1. Taxable Compensation - you must have taxable compensation such as salary, wages, commissions, self-employment income, alimony and separate maintenance, or nontaxable combat pay.
2. Minimum Age - there is no minimum age requirement, but please remember the taxable compensation factor above.
3. Maximum Age - for the years 2020 and later, there is no maximum age requirement.
4. Income Limits - the income limits change from year to year, and depend on your filing status whether you (and your spouse, if applicable) are covered by a retirement plan at work.  Please visit the IRS website containing information about Traditional IRA income limits.

Roth IRA Eligibility

Contributions to a Roth IRA are only allowed if you are eligible.  Contributions are not tax-deductible today, meaning that you have already paid tax on any contributions to the account.  However, any future earnings in the Roth IRA are exempt from income tax.  This is why a Roth IRA is classified as a tax-exempt account.

Roth IRA Eligibility depends on the two factors below:

1. Taxable Compensation - you must have taxable compensation such as salary, wages, commissions, self-employment income, alimony and separate maintenance, or nontaxable combat pay.
2. Income Limits - the income limits change from year to year, and depend on your filing status and whether you (and your spouse, if applicable) are covered by a retirement plan at work.  Please visit the IRS website containing information about Roth IRA income limits.

Please note there is no age limit when determining Roth IRA eligibility.

Disclosures:

Please note that higher tax-deferred balances could result in higher required minimum distributions (RMDs) in retirement.  This should be considered when implementing any contribution recommendations or other such strategies that seek to optimize across tax-exempt, tax-deferred, or taxable accounts.  If you are seeking to minimize RMDs, a contribution strategy that recommends a higher tax-deferred balance in your portfolio may not be appropriate.  Please consult your tax advisor when implementing any strategy that attempts to lower income taxes.

ComposedPro is not responsible for determining Traditional IRA or Roth IRA eligibility for clients.  Clients should discuss with their personal tax advisor before opening any new account or making any contributions to any tax-advantaged account.

Nothing herein should be interpreted as tax advice.  ComposedPro does not represent in any manner that the tax consequences described herein will be obtained or result in any particular tax consequence. You and your tax advisor are responsible for how transactions conducted in your account are reported to the IRS on your personal tax return. ComposedPro assumes no responsibility for the tax consequences to any client of any transaction.