Individual retirement accounts (IRAs) were added to the mix of retirement planning vehicles by the Employee Retirement Income Security Act of 1974. The idea implicit in this retirement-saving and tax-saving opportunity was that it permitted individuals to save for retirement without the necessity of their employer adopting a plan. The initial limit of a $2,000 annual deductible contribution has risen over time to $5,500. Those who have attained age 50 may make an additional “catchup” contribution of $1,000 per year, a provision added to encourage even more saving. To make IRA contributions, the individual must have at least that amount of compensation income for the year. An exception to that rule, the spousal IRA, permits a contribution to an IRA for a spouse even though the spouse has no separate income (as usual, if certain conditions are met).

The deductibility of contributions to IRAs phases out if the account owner or the owner’s spouse is a participant in a qualified retirement plan, such as a 401(k) plan or a profit-sharing plan. The phaseout begins at adjusted gross income of $60,000 and ends at $70,000 for single taxpayers; $96,000 to $116,000 for married taxpayers filing joint returns; $0 to $10,000 for married taxpayers filing separate returns; and for those whose spouse participates but the account owner does not, from $181,000 to $191,000. These numbers are adjusted for inflation each year.

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