Congress Removes IRA Contribution Age Restriction

Article Highlights:

• Appropriations Act of 2020
• Age Limit Repeal
• Contribution Limits
• Compensation
• Higher Income Taxpayer Deduction Phase-Out
• Spousal IRA
• Contribution Timing

On December 20, 2019, President Trump signed into law the Appropriations Act of 2020, which included a number of tax law changes, including retroactively extending certain tax provisions that expired after 2017 or were about to expire, a number of retirement and IRA plan modifications, and other changes that will impact a large portion of U.S. taxpayers as a whole. This article is one of a series of articles dealing with those changes and how they may affect you.

In the past, unlike Roth IRAs, which have no age restriction associated with making a contribution, taxpayers were unable to make a traditional IRA contribution in and after the year they reached the age of 70½. This is primarily because a Roth IRA contribution is not tax deductible, while a traditional IRA is, unless it is phased out for higher income taxpayers.

This created a hardship for older individuals who continued work after reaching the age of 70½ and who wanted to continue to contribute to their retirement by making traditional IRA contributions.

Now as part of the SECURE Act that was included in the Appropriations Act of 2020, and effective for tax years beginning in 2020, individuals who otherwise qualify can make traditional IRA contributions at any age.

Contribution Limits: The maximum that can be contributed to a traditional IRA in 2020 is the lesser of the taxpayer’s “compensation” or:


Compensation: In order to make contributions to an IRA, an individual must receive “compensation.” Compensation includes:

• Wages, tips, bonuses, professional fees, commissions;
• Alimony received (but only if taxable);
• Net income from self-employment (reduced by the sole proprietor’s own contribution to a Keogh retirement plan and the above-the-line deduction allowed for part of self-employment tax); and
• Non-taxable combat pay.

        NOTE: Do not net self-employment losses against wages to determine total compensation.

Compensation does not include rents, interest, dividends, nontaxable alimony, pensions, deferred compensation, or disability payments.

Contribution Deduction Limits for Higher Income Taxpayers – One of the main benefits of a traditional IRA is its tax deductibility. However, the deductibility of the traditional IRA is limited for higher income taxpayers who are active participants in qualified plans, in which case the deductibility of the traditional IRA begins to phase out once the individual’s adjusted gross income (AGI) reaches a threshold, and no deduction is allowed once the AGI exceeds the upper amount in the threshold range. The phase-out ranges are:


Spousal IRA Contributions - Spousal IRAs are available for married taxpayers who file jointly. Where one spouse has no compensation, the deduction is limited to the smaller of 100% of the employed spouse’s compensation or the combined annual limits. Thus, a nonworking spouse can contribute based on his or her working spouse’s compensation.

A married couple with unequal compensation that files a joint return is limited on the deductible contributions to the IRA of the spouse with less compensation. The limit is the smaller of:

1. The annual contribution limit, or
2. The total compensation of both spouses, reduced by any deduction allowed for contributions to IRAs of the spouse with more compensation.

Contributions to spousal IRAs do not need to be divided equally between spouses, but neither spouse may make a contribution of more than the annual contribution limit.

The deduction for contributions to both spouses’ IRAs may be further limited if either spouse is covered by an employer’s retirement plan.


Assume instead that Bill and Bonnie have an AGI of $114,000 ($10,000 above the phase-out threshold), and Bill is an active participant in an employer plan. His deductible IRA contribution for 2020 is $3,500 ([20,000 - $10,000]/$20,000 x $7,000). Bonnie’s spousal IRA deduction limit for 2020 is $7,000—she is not an active participant, and the couple’s combined AGI is below the $196,000 threshold, thus allowing her a full deduction of $7,000. Thus, the couple’s deductible IRA contribution for 2020 is $10,500 ($3,500 + $7,000).

Contribution Timing - A Traditional IRA contribution must be made by the due date (without extensions) of the tax return for the year of the deduction. Thus for 2020 the contribution must be made by April 15, 2021. The contribution can be made after a return is filed, but only if the contribution is made by the return due date.

If you have questions about making IRA contributions or the consequences of the repeal of the age limit for making contributions on your particular circumstances, please give this office a call.

If you missed any of the earlier tax law change articles you can view those articles at the links below:

• Congress Allowing Higher Medical Deductions for 2019 and 2020
• Employer’s Pension Startup Credit Substantially Increased
• Above-the-Line Education Tax Deduction Reinstated
• Mortgage Insurance Premium Deduction Retroactively Extended
• The Home Energy Saving Tax Credit Is Back
• Did You Pay Tax on Home Mortgage Debt Relief in 2018
• New Twist for Kiddie Tax with a Refund Opportunity
• Childbirth and Adoption Penalty Exception Add

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