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March 23, 2021
How to make a legitimate $28,000 IRA contribution
ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare. We bring Case of the Week to you to highlight the most relevant topics affecting your business.
A recent call with an advisor in Columbus, OH is representative of a common question involving IRA contributions. The advisor asked: A colleague of mine said a 60-year-old couple who is a client of his just made a $28,000 IRA contribution. Is this some new kind of plan? I thought the maximum contribution was $6,000, with a potential additional $1,000 catch-up contribution for someone age 50 and over?
Highlights of Recommendations
A $28,000 IRA contribution for the couple is possible, courtesy of a combination of several IRS rules covering
carry-back and current year contributions,
spousal contributions and
catch-up contributions.
From January 1, 2021 to May 17, 20211, it is potentially possible for a traditional or Roth IRA owner age 50 and over to make a $14,000 contribution: $7,000 as a 2020 carry-back contribution and $7,000 as a 2021 current-year contribution. That means a married couple filing a joint tax return could potentially make a $28,000 IRA contribution, with $14,000 going to each spouse’s respective IRA.
When making the contributions it is important to clearly designate to the IRA administrator that a portion is a carry-back contribution for 2020 and a portion is a 2021 current-year contribution in order to avoid having the full amount treated as a current-year contribution and, subsequently, an excess contribution for 2021.
Whether the traditional IRA contributions would be tax deductible depends upon “active participation” of either spouse in a workplace retirement plan2 and the couple’s MAGI.
Please see the applicable MAGI ranges in the following chart.
| Traditional IRA Eligibility for Deductible Contributions | ||
| Taxpayer Category | 2021 MAGI Phase-Out Ranges | 2020 MAGI Phase-Out Ranges |
| Married active participant filing a joint income tax return | $105,000-$125,000 | $104,000-$124,000 |
| Single active participant | $66,000-$76,000 | $65,000-$75,000 |
| Married active participant filing separate income tax return | $0-$10,000 | $0-$10,000 |
| Spouse of an active participant | $198,000-$208,000 | $196,000-$206,000 |
| Roth IRA Contribution Eligibility | ||
| Taxpayer Category | 2021 MAGI Phase-Out Ranges | 2020 MAGI Phase-Out Ranges |
| Married filing a joint income tax return | $198,000-$208,000 | $196,000-$206,000 |
| Single individuals | $125,000-$140,000 | $124,000-$139,000 |
| Married filing separate income tax return | $0-$10,000 | $0-$10,000 |
Conclusion
The deadline for making 2020 traditional or Roth IRA contributions is May 17, 2021. That means there is a window of opportunity that allows eligible investors to double up on IRA contributions (for 2020 and for 2021) to the tune of $28,000.