Retirement is a Long Way Off Until It’s Not – Should I Supplement My Retirement Savings With an IRA?

IRAs are an effective way for individuals covered by employer-sponsored retirement plans to supplement their retirement savings. Anyone can make IRA contributions up to the annual limit. For 2019, this limit is $6,000, plus an additional catch-up contribution of $1,000 for taxpayers 50 and older. For traditional IRAs, contributions are tax deductible in the year made. Taxes are deferred on both contributions and earnings until the year withdrawn. For Roth IRAs, contributions are after tax and withdrawals (if certain requirements are satisfied) are completely tax free, including earnings.

While everyone with income can contribute to an IRA, there are phase-outs for high earners. These phase-outs reduce or eliminate the ability to make deductible or Roth contributions. The phase-outs for deductible contributions only apply to individuals covered by an employer-sponsored retirement plan. The phase-outs for Roth contributions apply to all high earners.

• Individuals subject to these phase-outs can still make nondeductible contributions. Nondeductible contributions to an IRA are advantageous as taxes are deferred on earnings until the year withdrawn. This can be especially attractive for individuals who expect to be in a lower tax bracket after retirement.

• For 2019, if covered by a retirement plan, the phase-outs for deductible contributions are:

• Single taxpayers: $64,000 - $74,000

• Married filing jointly:

  • For the spouse covered by a plan: $103,000 - $123,000

  • For the spouse not covered by a plan: $193,000 - $203,000

• For 2019, for all individuals, the phase-outs for Roth contributions are:

• Single taxpayers: $127,000 - $132,000

• Married: $193,000 - $203,000