Traditional IRA and Roth IRA Tax Rules Tables

This IRA rules tables below are extracted from the VeriPlan family financial planning software, which includes traditional IRA and Roth IRA investment asset growth capabilities that are fully integrated with the rest of VeriPlan's do-it-yourself lifetime financial planning features. VeriPlan also provides automated DIY traditional IRA to Roth IRA conversion calculator functionality along with traditional and Roth 401k, 403b, and 457 investment growth projection calculator functionality.

For your convenience, the three tables provided below summarize rules for traditional IRAs and Roth IRAs.

You should consult IRS Publication 590, "Individual Retirement Arrangements (IRAs)" and/or a tax professional to confirm this information for your current tax year, before you make a personal finance decision about an individual retirement account.*

The tables below have columns of questions and 12 rows of information. On the first of the three graphics below, read the first four columns of questions to determine which of the twelve rows would apply to you. First, choose the "single" or "married, filing jointly" tax filing columns that apply to you. Next, determine whether or not you (and your spouse, if married) are covered by a retirement plan at work. (Read footnote 1.)

Once you have done this, you should have found one "traditional IRA" row and one "Roth IRA" row that applies to you. Keep track of these two rows and ignore the others. Then, read the remaining questions in the other columns of the table to compare the various traditional IRA and Roth IRA rules that affect you. Be careful to distinguish between the rules about whether you can make a contribution and whether an allowable contribution is tax deductible.

There are so many different rules that they had to be separated into three charts to fit practically on a webpage that could be viewed on a desktop, a tablet, or even a phone. The first two columns are the same on all three charts, so that you can keep track or which rows apply to you.

In addition, note that IRA rules apply on a per person basis. Single persons will have only two rows to keep track of -- one each for traditional IRAs and Roth IRAs. If you are married, you might have to keep track of four rows instead of two rows. The reason is that the rules can differ depending upon whether you or your spouse have an available retirement contribution plan at work.

Fun huh? The tax rules for traditional and Roth IRAs are very complex, and anyone could easy become confused by these rules. A careful reading of the 100+ page IRS Publication 590, "Individual Retirement Arrangements (IRAs)" would make anyone's head hurt.

If our government expects its citizens to act responsibly, to plan rationally, and to provide for an increasing portion of their own future financial welfare in retirement, then it ought to provide its citizens with a straightforward,simplified, and understandable set of tax incentives for retirement savings and investing. These excessively complex retirement tax incentives are a counterproductive national embarrassment. Our citizens deserve better.

From the VeriPlan User Guide Section 13.9: Annual contribution limits for traditional and Roth IRAs

This section provides a table that summarizes IRA tax rules. It also allows you to update VeriPlan, if IRA contribution limits change.

This section provides user updatable information about your potential maximum contributions into Independent Retirement Arrangement (IRA) accounts, including both traditional IRA and Roth IRA accounts. Whether or not you or your spouse may participate in employer-sponsored tax-advantaged programs, you can also make annual contributions to an IRA, if you and/or your spouse has sufficient compensation in that year. (Whether or not these contributions are deductible on your income taxes is managed automatically and is discussed below.)

VeriPlan uses current tax rules to develop projections that take into account automatically:

• the maximum potential contributions for you, if single, or for you and your spouse, if married.
• your compensation
• any additional catch-up contributions that you can make over age 50

VeriPlan automatically projects your future contributions into traditional IRA accounts and Roth IRA accounts, while it automatically takes into account contribution limitations, tax deductibility, and applicable taxes on withdrawals net of any tax basis. Most of the information in this section is educational. In addition, below you can change the parameters that VeriPlan uses to develop its IRA projections, if the tax laws change in the future.

Summary Table of Traditional IRA and Roth IRA Tax Rules

This chart is broken into three parts below, but the first two columns are included in all three parts. Note that the numbers may not be for the most recent year, but the numbers in the latest VeriPlan release are for the most recent year available.

Important Footnotes:

1) A retirement plan at work would be a defined contribution plan or a defined benefit (pension) plan. Whether or not you participate does not matter. It only matters, if you are covered. The deductibility of your traditional IRA contribution may be affected, if you or your spouse are covered by an employer-sponsored retirement plan at work. Roth IRA contributions are not deductible, so coverage by a plan at work is irrelevant.

2) To make any IRA contribution, you or your spouse must have compensation that is equal to or greater than the contribution. Compensation includes wages, salary, commissions, active self-employment or active partnership income (no losses), alimony and separate maintenance payments.

3) If your annual modified Adjusted Gross Income (AGI) exceeds certain levels, IRS rules may limit or eliminate your income tax deductions for your contribution to a traditional IRA account or your contributions to a Roth IRA account. VeriPlan projects your Adjusted Gross Income without modifications, because the IRS factors that go into the AGI modifications either would be immaterial for the great majority of taxpayers and/or would apply for only a few years, during the projections of most taxpayers.

The numbers cannot be changed directly in these charts instead, key numbers can be changed and updated in the bold border user data entry boxes below on this VeriPlan worksheet.

If you change any of the figures in the bold border data entry boxes, then VeriPlan with use your revisions to develop projections for you. This allows you to maintain current tax information, and avoids VeriPlan application obsolescence.

* YOU SHOULD NOT RELY ON THIS TABLE AS TAX ADVICE. CONSULT YOUR TAX ADVISOR WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF YOUR DECISIONS, INCLUDING THE EFFECTS OF U.S. FEDERAL, STATE, AND LOCAL TAX RULES AND THE EFFECT OF POSSIBLE CHANGES IN LAWS.

The VeriPlan retirement savings calculator uses current year retirement account tax rules to automatically project your lifetime tax-advantaged retirement savings.