Can I Add Money to a Rollover IRA?

A rollover IRA is an individual retirement account into which you've rolled over distributions from another retirement plan, such as a 401(k) or 403(b) plan. The name "rollover IRA" was attached to these types of IRAs to distinguish them from traditional IRAs, into which contributions were made out of earned income rather than through a rollover. Depending on your future plans with the funds, in some cases it can be advantageous to keep your rollover assets separate from other IRA money.

Contributions to a Rollover IRA

The Internal Revenue Service allows account holders to make regular contributions to a rollover IRA, subject to annual limits. However, making contributions to a rollover IRA may limit your future ability to roll that money into a new qualified plan. For example, if you take a new job and your employer offers a 401(k) plan, you can usually move your rollover IRA funds into the new 401(k) plan. However, if you have made regular contributions to your rollover IRA, you may no longer have that ability. The Employee Retirement Security Act of 1974 assigns different rights to qualified-plan money, such as 401(k) money. Plans covered by ERISA have federal protection against creditors, something that IRAs do not. Mixing traditional IRA contributions with rollover IRA money can thereby result in a denial of this federal protection.

Contribution and Deduction Limits

As with traditional IRAs, contributions to rollover IRAs are limited in two ways. First, there is a limit as to how much you can put into an IRA. Second, there is a limit to how much of your contribution you can take as a tax deduction.

The annual contribution limit for a rollover IRA is $5,500 as of the time of publication. This limit is raised to $6,500 for account holders 50 and older. These limits are further restricted to the amount of your earned income in any year. For example, if you only make $4,200 in a year, you can only put $4,200 into an IRA, even if the IRS limit is $5,500.

You can only deduct your contributions to a rollover IRA if you and your spouse are not covered by a retirement plan at work or if your income falls under certain limits. As of the publication date, you can take a full deduction if your income is $98,000 or less as a joint income tax filer or $61,000 or less as a single filer. Above those amounts, your deductions start to phase out until you reach an adjusted gross income of $118,000 or $71,000, respectively.

About the Author

John Csiszar earned a Certified Financial Planner designation and served for 18 years as an investment counselor before becoming a writing and editing contractor for various private clients. In addition to writing thousands of articles for various online publications, he has published five educational books for young adults.