What Is the IRS Maximum Allowable IRA Contribution?
To promote retirement savings, Congress introduced traditional IRAs in 1974. In 1997, Roth IRAs were introduced to provide an alternative retirement savings option. However, the Internal Revenue Service limits how much you can contribute each year.
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Size
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The IRS changes the contribution limits for IRAs for inflation on an annual basis. As of 2010, you can contribute up to $5,000 ($6,000 if you are 50 or older) or your total earned income, whichever is smaller.
Considerations
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If your modified adjusted gross income for your filing status is too high, your contribution limit for a Roth IRA will be decreased or disallowed. For example, in 2010, if you are married filing jointly, your contribution limit to a Roth IRA will go down if you have a MAGI between $167,000 and $177,000. You will not be able to contribute if your MAGI exceeds $177,000.
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Effects
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The IRS annual contribution limit for IRAs applies to contributions to both traditional IRAs and Roth IRAs. Each dollar put into a Roth IRA reduces the amount you can contribute to a traditional IRA, and vice versa.
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