The ERISA consultants at the Columbia Management Retirement Learning Center Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs and qualified retirement plans. A recent call with an advisor in Minneapolis is representative of a common question involving IRA contributions. The advisor asked:
A colleague of mine said a 60-year-old client couple of his just made a $26,000 IRA contribution. How is that possible? I thought the maximum amount was $5,500, with a potential additional $1,000 catch-up contribution for someone age 50 and over?
Highlights of Recommendations
• From January 1 to April 15, 2014, it is potentially possible for a traditional or Roth IRA owner age 50 and over to make a $13,000 contribution: $6,500 as a 2013 carry back contribution and $6,500 as a 2014 current year contribution. That means a married couple filing a joint tax return could potentially make a $26,000 IRA contribution, with $13,000 going to each spouse’s respective IRA.
• Such a large contribution would only be possible if the couple had not previously made a 2013 contribution to a traditional or Roth IRA, each spouse is age 50 or greater as of Dec. 31, 2013, and the couple has earned income to support the contribution. Furthermore, for a Roth IRA contribution, the couple’s income would need to be under the modified adjusted gross income (MAGI) limits for Roth IRA contribution eligibility. And, for a traditional IRA contribution, whether the contributions are tax deductible would depend upon the couples MAGI. Please see the applicable MAGI ranges below.
• When making the contribution, it is important to clearly designate to the IRA administrator that a portion is a carry back contribution for 2013 and a portion is a 2014 current year contribution in order to avoid having the full amount treated as a current year contribution and, subsequently, an excess contribution for 2014.
Conclusion
Because the deadline for making 2013 traditional or Roth IRA contributions is April 15, 2014, there is a window of opportunity that allows eligible investors to double up on contributions. Financial advisors who can demonstrate their knowledge of current year and carry back IRA contributions set themselves apart from the average advisor and, thereby, win more clients and retirement plan business.
The Columbia Management Retirement Learning Center Resource Desk is staffed by the Retirement Learning Center, LLC, a third-party industry consultant that is not affiliated with Columbia Management. For informational purposes only. Please consult a tax advisor or attorney for specific tax or legal needs. © 2014 Columbia Management Investment Advisers, LLC. Used with permission.
• When making the contribution, it is important to clearly designate to the IRA administrator that a portion is a carry back contribution for 2013 and a portion is a 2014 current year contribution in order to avoid having the full amount treated as a current year contribution and, subsequently, an excess contribution for 2014.
Conclusion
Because the deadline for making 2013 traditional or Roth IRA contributions is April 15, 2014, there is a window of opportunity that allows eligible investors to double up on contributions. Financial advisors who can demonstrate their knowledge of current year and carry back IRA contributions set themselves apart from the average advisor and, thereby, win more clients and retirement plan business.
The Columbia Management Retirement Learning Center Resource Desk is staffed by the Retirement Learning Center, LLC, a third-party industry consultant that is not affiliated with Columbia Management. For informational purposes only. Please consult a tax advisor or attorney for specific tax or legal needs. © 2014 Columbia Management Investment Advisers, LLC. Used with permission.