Is There a Maximum Amount Allowed to Open an IRA?
Individual Retirement Accounts are accounts that eligible taxpayers can invest in each year. The Internal Revenue Service establishes account contribution limits for all types of IRAs and revises contribution limits on an annual basis. There are two main types of IRAs that people use for retirement purposes: Traditional IRAs and Roth IRAs. Traditional IRAs hold pretax money, whereas Roth IRAs hold already taxed funds. The IRS imposes limits on annual contributions to IRAs as opposed to limits on deposits to new IRA accounts.
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History of IRAs
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Congress approved the Employee Retirement Income Security Act in 1974 and one aspect of the Act was the establishment of IRAs. Initially only people whose employers did not offer retirement plans could contribute, and those who set up IRAs could invest no more than $1,500 per year. In 1981, the Economic Recovery Act opened up IRAs to all taxpayers. In 1996, Congress passed legislation allowing the creation of a new type of IRA account known as Roth.
IRA Contribution Limits
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As of 2010, the IRS allows people age 50 and over to invest up to $6,000 in Roth and Traditional IRAs, whereas people under 50 can invest no more than $5,000. People who are eligible to participate in company sponsored retirement plans face further restrictions. The IRS only allows covered single taxpayers earning less than $56,000 and covered taxpayers filing jointly who earn less than $89,000 to invest in Traditional IRAs. Single taxpayers earning below $105,000 and joint taxpayers earning below $167,000 can invest the maximum in a Roth. Some individuals earning more can make reduced contributions.
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Non-Working Spouses
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Non-working spouses can make contributions to IRAs. The IRS allows them to make contributions of $5,000 if below the age of 50, and $6,000 if 50 and over into both Roth and Traditional IRAs. The working spouse must earn enough income to cover contribution amounts for himself and his spouse. A non-working spouses can make the maximum contribution if her spouse's income does not exceed $167,000. People can make partial contributions if their spouse earns between $167,000 and $177,000.
IRA Account Types
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People can invest IRA funds in mutual funds, stocks, bonds, annuities, certificates of deposit, real estate or basic savings accounts. The IRS does not place contribution limits on any account types, but some financial institutions do. When banks and credit unions have high rates on CDs, they sometimes restrict investments to as a little as $1,000. The other investment types generally have minimum investment restrictions rather than maximum investment restrictions.
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