IRA Contribution Rules

In general, an IRA can be funded through several different means, including:

  • Spousal IRA Contributions
  • IRA Owner Contributions
  • Rollover Contributions
  • Transfers

This article will discuss the IRA contribution rules to help you better understand how you can make the most out of your Individual Retirement Account.

Spousal IRA Contributions

A person can open and contribute money on behalf of his or her spouse who stays-at-home or only works on a part-time job. Spousal Individual Retirement Accounts are supervised by the IRS through the same limits and rules as what traditional IRA owners have to comply with. The spousal IRA should be held by spouses separately because IRA rules state that they can’t be managed as joint retirement accounts.

To become eligible in making contributions in this account, the following qualifications must be met:

  • The couple is married and has filing status of joint tax return.
  • The person who is applying for the Spousal IRA is showing an earned income.
  • The contribution for both accounts should not exceed the contribution limits as well as the taxable compensation limits.

IRA Owner Contributions

On a yearly basis, you are permitted to place 100% of your compensation in an IRA based on the income limits stipulated by the IRA contribution rules. For 2010, you can contribute up to $5,000 plus a catch-up contribution of $1,000, if you are 50 years of age or older.

In 2009, the contributions were started to be indexed for COLA or cost-of-living adjustments, which led to $500 increments. However, catch-up contributions will not be indexed for inflation. All contributions to an IRA must be completed in checks or cash. Thus, you are proscribed from contributing money to your account in the form of securities.

Rollover Contributions

You may choose to complete rollover contributions to your traditional Individual Retirement Account. This is a tax-free process of moving your investments or assets between one retirement plan to another with the transaction being reportable – meaning any distribution is immediately reported to the Internal Revenue Service by the IRA owner through IRS Form 1099-R, and the contribution on Form 5498. The Roth IRA rules may differ, but as an IRA contributor, you may accomplish rollover contributions per IRA once every year.

Transfers

These are a nontaxable, non-reportable movement of investments between the same types of retirement accounts. As the owner, you can transfer your assets among SEP IRAs and traditional IRA or from SIMPLE IRAs to SEP or traditional IRAs. Normally, the investments are transferred for the chief objective of combining or merging assets or changing of financial companies.

The transfer of Individual Retirement Account may also be completed from your current or former’s spouse’s IRA to another retirement account, as long as the transfer complies with a legal separation agreement or a divorce decree. Transferring of assets between IRAs can be made any time you feel it necessary.

Deducting IRA Contributions

You may be qualified to receive tax deduction for your IRA contributions. This benefit is determined by the following factors:

  • Your tax-filing status
  • You MAGI or modified adjusted gross income
  • Your active-participant status as an IRA original account owner

Based on the IRA contribution rules, the deduction may either be full or partial. But even if you don’t get any, just contributing to an Individual Retirement Account gives you definite advantage for the future.

  • Jerry G

    Can my 69 year-old wife contribute to her IRA, based upon her employer pension income?

  • 3RGJ

    I have a question and cannot seem to find an answer anywhere. I am 64 have always been employed and paid into an IRA. I am now unemployed and will not get SS until I am 66. Can I, based upon my unemployment receipts/income, make an IRA payment for this year or are unemployment benefits considered as ‘unearned income’ and ineligible for IRA consideration ???

  • Ellilou Ilano

    Thanks for the info, it’s easy to understand. BTW, if anyone needs to fill out a “2009 irs form 1099, I found a blank form here: http://pdf.ac/42xvW9

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The information provided on this website does not constitute professional financial advice. We do our best to maintain current & accurate information, but some information may have changed since it was published. Please consult your tax or legal advisor(s) for questions & advice concerning your personal financial situation.
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