Maximum IRA Contributions
There are maximum IRA contributions that can be made in any given tax year. This maximum changes from year to year and is different for investors of different ages. It is important to know the rules for maximum IRA contributions before investing money in an IRA. The Internal Revenue Service is very strict with its regulations and there are significant penalties for violating them.
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Warning
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Before figuring out the maximum IRA contribution that can be made in a given tax year, it must be determined whether an investor is eligible to make an IRA contribution at all. As of 2008, if a single person has an adjusted gross income higher than $116,000 or a married person has an AGI higher than $169,000, they can not make any contributions to a Roth IRA. A single person with an AGI between $101,000 and $116,000 as well as a married people with AGI between $159,000 and $169,000 are allowed to make partial contributions. Those with lower AGI can make maximum Roth IRA contributions.
Considerations
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The rules are different for a traditional IRA. Anyone with earned income can make the maximum traditional IRA contribution as long as they had at least that much income in a given tax year. However, income limits affect the ability of an investor to take a tax deduction for a traditional IRA contribution if they are covered by a retirement plan at work. As of 2008, if a single person has an adjusted gross income higher than $63,000 or a married person has an AGI higher than $105,000, he gets no tax deduction for contributions to a traditional IRA. A single person with an AGI between $53,000 and $63,000 as well as a married people with AGI between $85,000 and $105,000 get a partial tax deduction. Those with lower AGI can deduct the entire traditional IRA contribution.
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Function
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The maximum IRA contributions are the same for both traditional IRAs and Roth IRAs. The amount of these maximum IRA contributions changes from year to year. Prior to 2002 the limit for investors under 50-years-old was $2000. The IRS raised that to $3000 in 2002 then $4000 in 2005 then $5000 in 2008. The Internal Revenue Service is expected to continue raising IRA contribution limits in the future. Check with the IRS for the most current maximum IRA contributions.
Features
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Investors 50 years and older are allowed higher maximum IRA contributions. This is called a "catch up" contribution. These maximums also change from year to year. Before 2002 the limit was the same as younger people at $2000. The IRS raised it to $3500 in 2002 then $4500 in 2005, $5000 in 2006 and $6000 in 2008. The Internal Revenue Service is expected to continue raising maximum IRA contributions in the future. Check with the IRS for the most current maximum IRA contributions for older investors.
Time Frame
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Contributions to traditional IRAs must end when an investor reaches 70 and one half years of age. Roth IRAs allow investors to continue making maximum contributions at any age. IRA contributions are assigned to a specific tax year. However, the deadline to contribute to a tax year is actually the tax filing deadline. This is April 15 of the next calendar year.
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