An Individual Retirement Account (IRA) is an account that gives you tax advantages for your retirement savings.
2023 Contribution Limits
For tax year 2023, IRA contributions are limited to a total of $6,500 ($7,500 if over age 50). If you have more than one IRA, your total contributions to any combination of IRAs cannot exceed this limit.
To make a $6,500 contribution you must have at least $6,500 of taxable compensation.
Traditional IRAs
One of the tax advantages of a traditional IRA is that you can deduct the amount you contribute from your taxable income. However, there are limitations on what you can deduct if you are covered by a pension plan. The IRS considers you to be covered by a pension plan as of the first date you began participating in IMRF, even if you are not vested.
2023 Traditional IRA Contribution Rules
| For single members | |
|---|---|
| If your adjusted gross income is... | You can deduct... |
| Under $73,000 |
Your entire IRA contribution |
| Over $73,000 but under $83,000 |
The amount you can deduct is based on a formula. As your adjusted gross income increases, the amount you can deduct decreases. (Refer to IRS publication 590-A) |
| Over $83,000 |
Nothing; your entire contribution is non-deductible |
| For married members who file jointly | |
|---|---|
| If your adjusted gross income is... |
You can deduct... |
| Under $116,000 |
Your entire IRA contribution |
| Over $116,000 but under $136,000 |
The amount you can deduct is based on a formula. As your adjusted gross income increases, the amount you can deduct decreases. (Refer to IRS publication 590-A) |
| Over $136,000 |
Nothing; your entire contribution is non-deductible |
| For married members who file separately | |
|---|---|
| If your adjusted gross income is... |
You can deduct... |
| Between $0 and $10,000 |
The amount you can deduct is based on a formula. As your adjusted gross income increases, the amount you can deduct decreases. (Refer to IRS publication 590-A) |
| Over $10,000 |
Nothing; your entire contribution is non-deductible |
If You Make Non-deductible Contributions
If you make non-deductible contributions to a traditional IRA, you need to complete IRS Form 8606.
This form details the deductible and non-deductible money in your IRA so you will not pay tax a second time on the portion of your withdrawal that include your non-deductible contributions. However, each withdrawal you make will include at least a proportionate amount of earnings on those contributions that will be taxable.
Roth IRAs
Contributions you make to a Roth IRA are not deductible from your taxable income. In addition:
- Earnings in the account are never taxed, if they are withdrawn after you reach age 59-1/2 and the account has been in existence for at least five years. Unlike a regular IRA, contributions can be made to a Roth IRA account after you reach your required minimum distribution (RMD) age. age (See www.irs.gov for more information about your RMD.) However, after you reach your RMD age, you must have sufficient earned income to continue making contributions.
- There is no minimum withdrawal requirement for taxpayers over your RMD age.
- Lump sum payments (for example, separation refunds or lump sum death benefits) from IMRF contributions can be rolled over to the Roth IRA. However, for taxes this is a taxable distribution. It is treated as if the lump sum was rolled over to an IRA and then converted to a Roth IRA.
2023 Roth IRA Contribution Rules
| For single members | |
|---|---|
| If your adjusted gross income is... | You can contribute... |
| Below $138,000 |
Up to $6,500 ($7,500 if over age 50) |
| At least $138,000 but under $153,000 |
Your contribution is reduced (Refer to IRS publication 590-A) |
| $153,000 or more |
You cannot contribute to a Roth IRA |
| For married members who file jointly | |
|---|---|
| If your adjusted gross income is... |
You can contribute... |
| Below $218,000 |
Up to $6,500 ($7,500 if over age 50) |
| At least $218,000 but under $228,000 |
Your contribution is reduced (Refer to IRS publication 590-A) |
| $228,000 or more |
You cannot contribute to a Roth IRA |
| For married members who file separately | |
|---|---|
| If your adjusted gross income is... |
You can contribute... |
| $0 | Up to $6,500 ($7,500 if over age 50) |
| Between $0 and $9,999 |
Your contribution is reduced (Refer to IRS publication 590-A) |
| $10,000 or more |
You cannot contribute to a Roth IRA |
Additional Information
For additional information you can download publications from www.irs.gov, request IRS publications at 1-800-TAX-FORM (1-800-829-3676), or consult a tax advisor. An IRS publication that may be helpful is IRS Publication 590-A, "Contributions to Individual Retirement Arrangements (IRAs)"
