Find out what the self-employed should know about contributing to an IRA.
Q. "I’m self-employed with earned income of $200,000 and unearned income of $100,000. I’m 60 years old and would like to contribute the maximum amount to a traditional IRA. Are there any income limits I should know about?"
A . No, there are no income limits that apply to a traditional IRA. For 2013 and 2014, you can make contributions up to $5,500 (or $6,500 if you’re age 50 or older) or your earned income for the year, whichever is less.
However, if your earned income exceeds certain amounts, some or all of your contributions may not be tax deductible if you or your spouse is also covered by a retirement plan at work. You can continue to make contributions to a traditional IRA until the year when you reach age 70½.
I recommend that you get familiar with IRA options for the self-employed because they allow you to contribute much higher, tax-deductible amounts than a traditional IRA. For instance, with a SEP-IRA in 2014, you could contribute up to $52,000 or 25% of compensation (up to certain limits), whichever is less.
You can even make contributions to a SEP-IRA even beyond age 70½, but you must also take annual required minimum distributions.
To learn more about retirement account options for the self-employed see IRS Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans)
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