Pursuant to Publication 590-A, page 9, a taxpayer can contribute to his or her traditional IRA the smaller of $6,000 ($7,000 if the taxpayer is 50 or older) or the taxpayer’s taxable compensation for the year (Publication 590-A, page 6).
- Compensation includes items such as wages, salaries, commissions, self-employment income, alimony and separate maintenance payments, and nontaxable combat pay.
- Compensation does not include items such as earnings and profits from property, interest and dividend income, pension or annuity income, deferred compensation, income from certain partnerships, and any amounts the taxpayer excludes from income (other than combat pay). (Publication 590-A, page 6)
In addition, compensation does not include government-provided unemployment compensation (IRC Section 219(f)(1) and Revenue Procedure 91-18).
An individual retirement account (IRA) is a retirement plan created and contributed to by the taxpayer. It may create a limited deduction—contributions are deductible only if the taxpayer is not covered by any qualified tax-deferred retirement plan (Keogh, 401(k), or other employer-sponsored plan) or if the AGI of the taxpayer is below certain specified levels. The amounts earned in an IRA are not taxable until distributed to the taxpayer. An IRA is sometimes referred to as a traditional IRA.
Individuals who receive compensation, including alimony, that is includible in gross income are able to make contributions to an IRA. Contribution limits for 2022 are $6,000 and an additional $1,000 for those taxpayers aged 50 and older, for a total of $7,000.
A participant who will attain age 50 before the end of a calendar year is deemed to be age 50 as of January 1 of that year for purposes of determining his or her IRA catch-up contribution. The catch-up contribution can be made on any day of that year.