IRS Publication 590-A: Guide to Traditional & Roth IRAs

Introduction: What is Publication 590-A?

IRS Publication 590-A, officially titled Contributions to Individual Retirement Arrangements (IRAs), is the federal government’s primary manual for individual retirement savings. While employer-sponsored plans like 401(k)s and pensions play a major role in retirement planning, IRAs allow individuals to build wealth independently with unique tax advantages. However, navigating the rules surrounding who can contribute, how much can be deposited, and whether contributions are tax-deductible requires careful attention to federal guidelines.

The primary purpose of Publication 590-A is to explain the rules governing *contributions* to Traditional and Roth IRAs. (Distributions and withdrawals are covered separately in Publication 590-B). It details how taxable compensation dictates your ability to save, outlines income phaseouts for deductible Traditional IRAs and Roth accounts, and explains how to handle account rollovers, conversions, and excess deposits.

Because retirement savings rules involve strict annual deadlines and potential excise penalties, understanding Publication 590-A is essential for every saver. This publication translates complex statutory limits into accessible worksheets and examples, ensuring you maximize your retirement contributions while keeping your tax returns fully compliant with the IRS.

Who Should Read This Publication?

Publication 590-A is an indispensable guide for any taxpayer planning to fund an individual retirement account:

• Individual Retirement Savers: Workers opening or contributing to a Traditional or Roth IRA to supplement workplace retirement benefits.
• Employees with Workplace Plans: 401(k) participants who need to determine if their Traditional IRA contributions remain tax-deductible based on their income.
• High-Income Earners: Individuals navigating Roth IRA income caps or considering backdoor Roth conversions.
• Single-Income Married Couples: Spouses utilizing Spousal IRA rules to fund retirement accounts for a non-working partner.
• Investors Executing Rollovers: Account holders moving money between financial institutions who need to navigate the one-rollover-per-year limitation.
• CPAs and Financial Planners: Tax advisors tracking non-deductible basis on Form 8606 and correcting accidental excess contributions.

Key Topics Covered

Publication 590-A organizes the rules of IRA funding into clear, actionable chapters. Its core topics include:

• Taxable Compensation Standards: Defining what forms of earned income legally qualify you to fund an IRA.
• Traditional IRA Deductibility: How workplace retirement plan coverage and Modified Adjusted Gross Income (MAGI) limit tax deductions.
• Roth IRA Eligibility Rules: Income phaseout ranges that dictate whether you can make direct contributions to a Roth account.
• Spousal IRA Rules: How working spouses can fund retirement accounts for non-earning partners.
• Rollovers, Transfers, and Conversions: Differentiating between trustee-to-trustee transfers, 60-day rollovers, and Traditional-to-Roth conversions.
• Excess Contributions and the 6% Penalty: Identifying over-contributions and understanding the corrective withdrawal procedures.

Detailed Breakdown of Main Concepts

1. The Taxable Compensation Requirement

You cannot fund an IRA simply because you have money in the bank. Publication 590-A emphasizes that you must have “taxable compensation” during the calendar year to contribute to an IRA, and your total annual contributions cannot exceed your compensation for that year.

Qualifying compensation includes wages, salaries, tips, commissions, bonuses, professional fees, and net earnings from self-employment. However, non-work income—such as interest, dividends, capital gains, rental property profits, pensions, annuities, and Social Security benefits—does not count as compensation. The primary exception is the Spousal IRA rule, which allows a non-working spouse to use their partner’s earned compensation to fund their own IRA.

2. Traditional IRA Deductibility & The Active Participant Rule

Anyone with taxable compensation can open and contribute to a Traditional IRA, regardless of how much money they make. However, whether that contribution is *tax-deductible* depends on two factors: your Modified Adjusted Gross Income (MAGI) and whether you or your spouse are covered by an employer-sponsored retirement plan (such as a 401(k), 403(b), or pension).

If neither you nor your spouse is an “active participant” in a workplace plan, your Traditional IRA contribution is 100% tax-deductible, regardless of your income. If you are covered by a workplace plan, your deduction phases out over specific statutory MAGI brackets. If your deduction is phased out entirely, you can still make a “nondeductible contribution,” which must be tracked on Form 8606 to establish after-tax basis.

3. Roth IRA Contribution Limits and Income Caps

A Roth IRA offers a different tax advantage: contributions are made with after-tax dollars, meaning there is no immediate tax deduction. In exchange, your investments grow completely tax-free, and qualified withdrawals in retirement are 100% exempt from federal income taxes.

However, Publication 590-A explains that Roth IRAs feature strict income eligibility ceilings. If your MAGI exceeds statutory annual phaseout limits based on your filing status, you are legally barred from making a direct contribution to a Roth IRA. High-income taxpayers who exceed these limits often make a nondeductible Traditional IRA contribution and immediately convert it to a Roth account, a strategy commonly known as a Backdoor Roth IRA.

4. Direct Transfers vs. 60-Day Rollovers

Moving money between IRAs must be done carefully to prevent unexpected tax bills. Publication 590-A distinguishes between two primary movement methods:

• Trustee-to-Trustee Transfer: The funds move directly from one financial custodian to another without you ever touching the cash. There is no tax withholding, no reporting requirement on Form 1040, and you can execute an unlimited number of direct transfers each year.
• 60-Day Rollover: The custodian issues a check payable directly to you. You have exactly 60 calendar days from the date you receive the money to deposit it into another eligible retirement account. Crucially, the IRS enforces a strict *one-rollover-per-year limitation* under Section 408(d)(3)(B), which applies across all of your IRAs combined. Attempting a second 60-day rollover within a 12-month period turns the transaction into a taxable distribution.

5. The 6% Excess Contribution Penalty

An excess contribution occurs if you contribute more than your earned compensation, exceed statutory annual dollar limits, or contribute directly to a Roth IRA while exceeding the income thresholds. Publication 590-A warns that the IRS assesses a mandatory 6% excise tax penalty on the excess amount for every single year the excess remains in your account.

To avoid this penalty, you must remove the excess contribution before the due date of your tax return (including extensions). You must withdraw the excess dollar amount along with any net income attributable (earnings) earned while the money was in the account. The withdrawn earnings are reported as taxable income on your return for the year the contribution was made.

6. The Saver’s Credit (Form 8880)

Publication 590-A highlights a valuable incentive designed to encourage lower- and moderate-income workers to save for retirement: the Retirement Savings Contributions Credit, commonly known as the Saver’s Credit. This is a nonrefundable tax credit claimed on Form 8880.

Depending on your Adjusted Gross Income, the credit equals 10%, 20%, or 50% of the first $2,000 you contribute to an IRA ($4,000 for married couples filing jointly). This provides a powerful double benefit: if you contribute to a Traditional IRA, you can claim an above-the-line deduction that lowers your taxable income, while simultaneously claiming the Saver’s Credit to reduce your calculated tax liability dollar-for-dollar.

Practical Examples and Scenarios

The following examples demonstrate how individuals apply the rules in Publication 590-A to their annual retirement planning.

Scenario 1: Workplace 401(k) Participant Funding a Traditional IRA

David is single and earns an $85,000 salary as an engineer, actively participating in his employer’s 401(k) plan. In November, David opens a Traditional IRA and contributes $6,000, hoping to deduct the entire amount on his taxes.

David consults Publication 590-A to determine deductibility. Because he is an active participant in a workplace plan and his MAGI falls squarely within the statutory single phaseout range, his deduction is partially phased out. Using the worksheet in the publication, David calculates that $3,600 of his contribution is tax-deductible on Schedule 1. He files Form 8606 to report the remaining $2,400 as a nondeductible contribution, establishing his after-tax basis.

Scenario 2: The Spousal IRA for a Stay-at-Home Partner

Marcus and Emily are married filing jointly. Marcus works full-time, earning $95,000, while Emily stays home to care for their young children and earns zero wages. Emily wants to build her own retirement savings.

Under Publication 590-A, Emily qualifies for a Spousal IRA. Because Marcus has sufficient earned compensation to cover both accounts ($95,000 easily covers two maximum annual contributions), Emily opens and fully funds a Roth IRA in her own name. The family effectively doubles their annual retirement savings using one spouse’s income.

Traditional IRA vs. Roth IRA Contribution Comparison

Comparison Element	Traditional IRA	Roth IRA
Upfront Tax Deduction	Yes (Subject to workplace plan & MAGI limits)	No (Contributions made with post-tax dollars)
Income Limits to Contribute	No income ceiling (Anyone with compensation can contribute)	Strict MAGI phaseout ceilings apply
Tax Treatment of Growth	Tax-deferred (Taxed upon withdrawal)	Tax-free (Qualified withdrawals 100% tax-free)
Contribution Deadline	Tax filing due date (Generally April 15)	Tax filing due date (Generally April 15)
Form 8606 Reporting	Required if making nondeductible contributions	Required only for conversions or distributions

How This Publication Relates to Specific Forms

Publication 590-A provides the regulatory instructions for interpreting and filing several primary tax forms:

• Form 5498 (IRA Contribution Information): Issued annually by your IRA custodian by May 31, reporting your total annual contributions, rollovers, and year-end fair market value to the IRS.
• Form 8606 (Nondeductible IRAs): Attached to Form 1040 to record nondeductible Traditional IRA contributions, track your cumulative basis, and report Roth conversions.
• Form 5329 (Additional Taxes on Qualified Plans): Filed to calculate and pay the 6% excise penalty tax on excess contributions that were not withdrawn by the tax deadline.
• Form 8880 (Credit for Qualified Retirement Savings Contributions): Used to calculate the Saver’s Credit for low-to-moderate-income retirement savers.
• Schedule 1 (Form 1040): Line 20 is where deductible Traditional IRA contributions are entered as an above-the-line adjustment, reducing your Adjusted Gross Income.

Common Misunderstandings Clarified

Misunderstanding 1: “Having a workplace 401(k) legally bans you from contributing to an IRA.”

Participating in an employer-sponsored plan never prevents you from contributing to an IRA. You can always contribute to a Traditional IRA regardless of your employer’s plan or your income level. The workplace plan only affects whether your Traditional IRA contribution can be deducted on your taxes.

Misunderstanding 2: “Passive investment income allows you to fund an IRA.”

Many retirees and rental owners believe that earning $50,000 in dividends or rental real estate income entitles them to fund an IRA. The IRS strictly requires earned compensation from active personal services or trade activities. Capital gains, pensions, interest, and passive investments cannot be used to fund an IRA.

Misunderstanding 3: “You must make your IRA contributions by December 31.”

Unlike employer-sponsored 401(k) plans that must be funded through payroll before December 31, you have until the regular tax filing deadline—typically April 15 of the following year—to make an IRA contribution for that tax year. Filing an extension does not extend your April 15 contribution deadline.

Misunderstanding 4: “You can execute multiple 60-day rollovers between your IRAs each year.”

The IRS strictly enforces the one-rollover-per-year rule for 60-day indirect rollovers. You cannot execute an indirect rollover from an IRA if you made an indirect rollover from any of your IRAs within the preceding 12 months. Violating this rule turns the second transfer into an immediate taxable distribution subject to penalties.

Why This Publication Matters for Taxpayers

Failing to understand IRA contribution rules can result in persistent, compounding financial penalties. An unnoticed excess contribution to a Roth IRA will accrue a 6% excise penalty every single year until discovered and corrected, turning a well-intentioned investment into an administrative nightmare.

Conversely, Publication 590-A provides the roadmap for maximizing legitimate tax shelters. Understanding the interaction between workplace 401(k)s, spousal IRAs, and basis tracking on Form 8606 enables households to legally save tens of thousands of dollars in taxes while building a strong foundation for long-term retirement security.

Frequently Asked Questions

Is there an age limit for contributing to a Traditional IRA?

No. Under the SECURE Act, Congress permanently eliminated the maximum age limit for Traditional IRA contributions. As long as you have taxable earned compensation from work, you can continue contributing to a Traditional or Roth IRA at any age.

What is a Backdoor Roth IRA according to Publication 590-A rules?

A Backdoor Roth IRA is a strategy used by high earners whose income exceeds Roth eligibility limits. The taxpayer makes a nondeductible contribution to a Traditional IRA (which has no income limit) and subsequently executes a tax-free conversion of those after-tax funds into a Roth IRA, reporting the transaction on Form 8606.

Can I contribute to both a 401(k) and an IRA in the same year?

Yes. You can contribute up to the maximum legal limits to both an employer 401(k) and a personal IRA in the exact same calendar year, provided you have sufficient earned compensation to support both contributions.

What happens if I contribute to an IRA and have no earned income?

If you contribute without having taxable compensation (and cannot use a spouse’s earnings under Spousal IRA rules), the entire deposit is treated as an excess contribution. You must withdraw the funds before your tax filing deadline or face the recurring 6% excise tax on Form 5329.

What is the difference between Publication 590-A and Publication 590-B?

Publication 590-A focuses strictly on *contributing* to IRAs, covering eligibility, deductibility, and rollovers. Publication 590-B covers *distributions*, detailing the rules for retirement withdrawals, early distribution penalties, and Required Minimum Distributions (RMDs).

Conclusion

IRS Publication 590-A is the authoritative guide for anyone seeking to build retirement wealth through Individual Retirement Arrangements. By establishing clear standards for taxable compensation, detailing Traditional IRA deduction phaseouts, and explaining the income rules for Roth IRAs, it removes the guesswork from retirement savings.

Whether you are opening your first Roth IRA, maximizing deductions alongside a workplace 401(k), or executing a direct custodian transfer, consulting Publication 590-A ensures your contributions are maximized, your deductions are legally sound, and your retirement portfolio is built on a solid, audit-proof foundation.