by IRAAA
What’s New for 2005
Hurricane tax relief. Special rules apply to the use of retirement funds (including IRAs) by qualified individuals who suffered an economic loss as a result of Hurricane Katrina, Rita, or Wilma. See Hurricane-Related Relief, in Chapter 4 for information on these special rules.
Traditional IRA contribution and deduction limit. The contribution limit to your traditional IRA for 2005 increased to the smaller of the following amounts:
- $4,000, or
- Your taxable compensation for the year.
If you were age 50 or older before 2006, the most that could be contributed to your traditional IRA for 2005 is the smaller of the following amounts:
- $4,500, or
- Your taxable compensation for the year.
For more information, see How Much Can Be Contributed? in chapter 1.
Roth IRA contribution limit. If contributions on your behalf were made only to Roth IRAs, your contribution limit for 2005 will generally be the lesser of:
- $4,000, or
- Your taxable compensation for the year.
If you were age 50 or older in 2005 and contributions on your behalf were made only to Roth IRAs, your contribution limit for 2005 is generally the lesser of:
- $4,500, or
- Your taxable compensation for the year.
However, if your modified AGI is above a certain amount, your contribution limit may be reduced. For more information, see How Much Can Be Contributed? under Can You Contribute to a Roth IRA? in chapter 2.
Modified AGI limit for traditional IRA contributions increased. For 2005, if you were covered by a retirement plan at work, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified adjusted gross income (AGI) is:
- More than $70,000 but less than $80,000 for a married couple filing a joint return or a qualifying widow(er),
- More than $50,000 but less than $60,000 for a single individual or head of household, or
- Less than $10,000 for a married individual filing a separate return.
For all filing statuses other than married filing separately, the upper and lower limits of the phaseout range increased by $5,000. See How Much Can You Deduct? in chapter 1.
Page 2 Increase in limit on salary reduction contributions under a SIMPLE. For 2005, salary reduction contributions that your employer could make on your behalf under a SIMPLE plan increased to $10,000 (up from $9,000 in 2004).
For more information about salary reduction contributions, see How Much Can Be Contributed on Your Behalf? in chapter 3.
Additional salary reduction contributions to SIMPLE IRAs for persons age 50 and older. For 2005, additional salary reduction contributions could be made to your SIMPLE IRA if:
- You were age 50 or older in 2005, and
- No other salary reduction contributions could be made for you to the plan for the year because of limits or restrictions, such as the regular annual limit.
For 2005, the additional amount is the lesser of the following two amounts.
- $2,000 (up from $1,500 for 2004), or
- Your compensation for the year reduced by your
other elective deferrals for the year.
For more information, see How Much Can Be Contributed on Your Behalf? in chapter 3.
Modified AGI. Beginning in 2005, the domestic production activities deduction is added back to income when figuring modified AGI. See Modified AGI in chapter 1.
Modified AGI for conversion purposes. Beginning in 2005, modified AGI for conversion purposes does not include required distributions from IRAs. For more information, see Modified AGI in chapter 2.
What’s New for 2006
Traditional IRA contribution and deduction limit. The contribution limit to your traditional IRA for 2006 will be the smaller of the following amounts:
- $4,000, or
- Your taxable compensation for the year.
If you will be age 50 or older before 2007, the most that can be contributed to your traditional IRA for 2006 will be the smaller of the following amounts:
- $5,000, or
- Your taxable compensation for the year.
For more information, see How Much Can Be Contributed? in chapter 1.
Roth IRA contribution limit. If contributions on your behalf are made only to Roth IRAs, your contribution limit for 2006 will generally be the lesser of:
- $4,000, or
- Your taxable compensation for the year.
If you will be age 50 or older before 2007 and contributions on your behalf are made only to Roth IRAs, your contribution limit for 2006 will generally be the lesser of:
- $5,000, or
- Your taxable compensation for the year.
However, if your modified AGI is above a certain amount, your contribution limit may be reduced. For more information, see How Much Can Be Contributed? under Can You Contribute to a Roth IRA? in chapter 2.
Modified AGI limit for traditional IRA contributions increased for a married couple filing a joint return. For 2006, if you are covered by a retirement plan at work, your deduction for contributions to a traditional IRA will be reduced (phased out) if your modified adjusted gross income (AGI) is:
- More than $75,000 but less than $85,000 for a married couple filing a joint return or a qualifying widow(er),
- More than $50,000 but less than $60,000 for a single individual or head of household, or
- Less than $10,000 for a married individual filing a separate return.
See How Much Can You Deduct? in chapter 1.
Additional salary reduction contributions to SIMPLE IRAs for persons age 50 and older. For 2006, additional salary reduction contributions can be made to your SIMPLE IRA if:
- You will be age 50 or older before 2007, and
- No other salary reduction contributions can be made for you to the plan for the year because of limits or restrictions, such as the regular annual limit.
For 2006, the additional amount is the lesser of the following two amounts.
- $2,500 (up from $2,000 for 2005), or
- Your compensation for the year reduced by your
other elective deferrals for the year.
For more information, see How Much Can Be Contributed on Your Behalf? in chapter 3.
Qualified Roth contribution programs. For tax years beginning after 2005, 401(k) and 403(b) plans can create a qualified Roth contribution program so that participants may elect to have part or all of their elective deferrals to the plan designated as after-tax Roth contributions….