Payroll Dictionary
Individual Retirement Account (IRA)
Any individual may contribute 100 percent of earned income, up to $5,500 a year, to an IRA ($11,000 on a joint return, i.e. $5,500 per spouse). Taxpayers over age 50 are allowed to contribute an additional $1,000. The contributions are deductible from gross income, except for individuals who participate in a qualified deferred compensation plan with AGI over a certain level ($61,000 in 2016, and for joint filers, $98,000 in 2016. The investment grows tax-deferred, but all withdrawals constitute gross income. A 10 percent penalty on gross income is levied on pre-age 59 1/2 withdrawals, except on account of disability, death, first-time home purchases (up to $10,000), insurance premiums for the unemployed, deductible medical expenses, as well as withdrawals in the shape of annuities. Withdrawals must start with respect to the year the participant reaches age 70 1/2. An IRA may receive tax-deferred rollovers from other qualified plans, including other IRAs. Distributions from IRAs are not subject to withholding.