2016 IRA Rules - Limits On Contributions And Income

For 2016 contribution limits remain unchanged, but income limits adjust.

IRA account egg sitting in a nest.
Everything you need to know about funding your IRA nest egg.. Andrew Unangst/Getty Images

How much can you contribute to an IRA in 2016? 

  • $5,500 for those age 49 and under
  • $6,500 for those age 50 and older (use age at end of calendar year)

These contribution amounts are the same as they have been for the past few years; however, the income limits that apply to determine if you can deduct all or some of the contribution amount have increased slightly.

Note: the contribution limits and income limitations discussed in this article do not apply to SEP IRAs or SIMPLE IRAs - only to the Traditional IRA.

Income limitations when you - or a spouse - have a company sponsored retirement plan

If you and/or your spouse participate in a company sponsored retirement plan (such as 401(k) or Section 457), you can still make an IRA contribution – but -- it may not be deductible. Income limitations apply to determine if you can deduct your IRA contribution.

  • For single filers who are covered by a company retirement plan in 2016 the deduction is phased out between $61,000 and $71,000 of modified adjusted gross income (MAGI) 
  • For married filers if you are covered by a company retirement plan in 2016 the deduction is phased out between $98,000 and $118,000 of MAGI. 
  • For married filers where you are not covered by a company plan but your spouse is - in 2016, the deduction for your IRA contribution is phased out between $184,000 and $194,000 of MAGI. 

What does it mean to participate in a company sponsored plan?

The IRS provides a concise description in Are You Covered by an Employer's Retirement Plan?

A different set of income limitations apply to Roth contributions. See Roth IRA Rules to see if you are eligible to make a Roth contribution.

Non-Deductible IRA contributions

Even if your IRA contribution is not deductible, you can still make a contribution.

It is called a non-deductible IRA contribution and the funds in the account will grow tax deferred until such time as you take a withdrawal.

Or, you may be eligible to make a full or partial Roth IRA contribution. Your total contributions to Roth and Traditional IRAs cannot exceed the dollar limits above, meaning you can contribute to both, such as $2,000 to a Traditional IRA and $3,500 to a Roth, but the total ob both contributions can't exceed the maximum contribution amount.

IRA rollovers and transfers do not count as a "contribution" and so they will not affect your ability to fund an IRA.

Earned income rules for all IRA contributions

You must have earned income to make an IRA contribution of any type. The amount of earned income you have must equal or exceed the amount of your IRA contribution. This means if you are retired and no longer working, you may not make an IRA contribution, although you can still rollover or transfer money from a 401(k) to an IRA.

Spousal IRA contributions

You may make an IRA contribution for a non-working spouse who has no earned income, as long as you have enough earned income.

This is called a spousal IRA contribution.

2016 IRA contribution deadlines

You have until April 15th of 2017 to make your 2016 IRA contribution.

Traditional IRA or Roth IRA?

Not sure which is best for you? There is no tax deduction for Roth IRA contributions but they have other features that make them one of the most useful retirement account options available. Learn more in Traditional IRA or Roth IRA.

Traditional IRA or HSA?

HSA stands for Health Savings Account. With a Health Savings Account you can make a deductible contribution and the money grows tax-free if used for health care expenses. I think many people would benefit from funding an HSA instead of an IRA, as the HSA offers penalty-free access for qualified medical expenses. This allows the HSA to be used to accumulate funds for retirement while doing double duty as an emergency fund for medical expenses in the event you have no other available funds to use to pay for them.

IRA limits are indexed to inflation

IRA limits are tied to inflation, but only go up in $500 increments. For example, a 3% inflation rate applied to a $5,500 limit is only a $165 increase. Next year another 3% would be a cumulative increase of $335. If inflation was again 3%, then that third year the cumulative increase would reach $500 and the limit would go up. Below you can see historical contribution limits. 

YearLimitIf Age 50+

Income limits on the ability to deduct your IRA contribution if you or your and a spouse have access to a company retirement plan also rise with inflation. Below is a brief history of these limits - the range refers to your modified adjusted gross income. 

YearSingleMarried1 spouse w/ company plan
2016$61,000 - $71,000$98,000 - $118,000$184,000 - $194,000
2015$61,000 - $ 71,000$98,000 - $118,000$183,000 - $193,000
2014$60,000 - $70,000$96,000 - $116,000$181,000 - $191,000
2013$59,000 - $69,000$95,000 - $115,000$178,000 - $188,000
2012$58,000 - $68,000$92,000 - $112,000$173,000 - $183,000
2011$56,000 - $66,000$90,000 - $110,000$169,000 - $179,000
2010$56,000 - $66,000$89,000 - $109,000$167,000 - $177,000

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