How to Determine a Maximum IRA Contribution

Contributing to a retirement plan can make sure you're set in your sunset years. A traditional or Roth IRA can be an alternative to or supplement for your 401(k) plan. The IRA can raise your retirement savings when you max out of the employer-sponsored plan. But you can max out of an IRA as well. Here's how to determine your maximum IRA contribution.

Difficulty: Moderate

Instructions

1. Decide what year your IRA contribution is going to cover. You have until April 15 of next year to make a contribution for this year. Different years will have different maximums. For example, the maximum in 2007 is between $4000 to 5000 depending on your age, but goes up to $5000 to 6000 for 2008.

2. Factor in your age. If you're 49 or younger, you can contribute $4000 in 2007 or $5000 in 2008, while those in the 50 plus crowd can contribute $5000 in 2007 and $6000 in 2008. Each year after 2008, contribution maximums increase by $500.

3. See if you are eligible add IRA catch-up contributions to your yearly contributions. If you're older than 50, you can contribute a maximum of $500 for years 2002 through 2005 and $1000 for 2006 and beyond.

4. Figure out whether your traditional IRA contribution is tax deductible. If you don't already have a 401(k) plan through work, you can deduct your IRA contribution regardless of your income. If you do contribute to a 401(k) or other employer-sponsored retirement plan, your income will determine whether you can deduct your IRA contributions. Employees earning $50,000 or more cannot deduct some or all of the IRA funds.

5. Ask your financial advisor, accountant or IRA fund manager any questions you might have. These experts are acquainted with your personal retirement savings situation and can give you the best guidance.