What Is a Contributory IRA?

A contributory IRA is simply an IRA to which you've made annual contributions.
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A contributory individual retirement arrangement isn't a special type of IRA, so it can be either a traditional IRA or a Roth IRA. In fact, most IRAs that people open are used as contributory IRAs because all the name means is that you've made annual contributions to the account.


Any IRA you open can be a contributory IRA. However, each year you must meet the eligibility requirements to make your annual contributions, regardless of whether you've contributed in the past. All IRAs may be funded only with compensation income earned during the tax year. This includes salary, hourly wages and alimony. You may open a traditional IRA if you are under 70 1/2 years of age. For a Roth IRA, you can be any age, but your modified adjusted gross income must fall below the annual limits.

Contribution Limits

The fact that you're allowed to contribute to an IRA doesn't mean you can stash away as much as you want. The IRS sets limits on how much you can put in each year. If your compensation is less than the limit, you may only contribute your total compensation. For example, in 2013 you can contribute up to $5,500 ($6,500 if you're 50 or older) or your compensation, whichever is smaller. These limits apply to the total contributions for all IRAs you own -- both traditional and Roth -- so each dollar you put in one decreases your remaining allowable contributions to both.

Conduit IRAs

Sometimes, you might have an IRA that you're intentionally not making contributions to because it contains money you rolled over from an employer's plan, like a 401(k) or a 403(b). When you commingle rollover funds with money that's already in an IRA or by making contributions to the account after you roll over the money, you lose any benefits specific to that account. For example, if you started working for the same company again in the next few years, you could roll money that you hadn't commingled back into your employer's plan and it would be treated as if you hadn't left.

No Official Designations

An IRA is never officially designated as either a "conduit IRA" or a "contributory IRA." Those terms merely describe what you've done with the account. So, if you have a conduit IRA but you've decided you don't need whatever benefits may still be attached to the money in it -- such as if you know the company couldn't pay you enough to go back to work for it -- you can make contributions to it without having to file any paperwork.

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