While planning for your financial future, it is very important for you to determine the current contribution limits. You need to have a clear idea about the amount you will be able to invest each year in your IRA retirement account. It is always good to contribute the maximum amount within the limits so that you can build bigger savings when you reach your retirement age. It is not obligatory to make maximum contributions but it is best to contribute as much as you can to extract maximum benefits from your IRA account.
For the year 2013 and 2014, the maximum amount you can contribute to both traditional as well as Roth IRA account is the smaller of
• $5,500 for age less than 50 ( $6,500 for age 50 or older), or
• Taxable compensation you have for that year.
The IRA contribution limit is not applicable to:
• Qualified reservist repayments and
• Rollover contributions
There are some guidelines that decide if your traditional IRA contributions can be tax-deductible or not. The tax deduction for your contributions can be limited if one of you or your spouse is covered by some retirement plans at work or if your annual income exceeds certain limits.
The rules related to the contribution limits of both traditional and Roth IRAs are the same. However, the contribution limits for Roth IRA might be impacted based on your annual income and tax filing status.
After 70 ½ years of age or older, it is restricted to make regular contributions to a traditional IRA account. But the contribution limits rule for Roth IRA is a little different. You are still eligible to make regular contributions to your Roth IRA account after 70 ½ years of age. There is no age bar for contributions to a Roth IRA account. You can also rollover your contributions to a Roth or a traditional IRA regardless of your ageA accounts for your spouse
If you are filing jointly, both you and your spouse can make IRA contributions if and only if one of you has a taxable compensation. The joint amount of your combined contributions cannot exceed the taxable compensation of your joint return. But it does not matter which one of you have earned that compensation.
If neither of you have participated in any retirement plan provided by your employer, your total contributions will be deductible.
Regardless of any retirement plan you have participated provided by your employer or business, you can contribute to both traditional as well as Roth IRA. But, if your spouse is participating in any other retirement plan, you might not be eligible to deduct your entire traditional IRA contributions.
• Your contribution exceeds the contribution limit.
• You are making regular IRA contributions after 70 ½ years of age.
• You make an inappropriate rollover contribution to an IRA account.
As long as the excess amounts of contributions are within the IRA contribution limits, you will be taxed 6% per year but the tax could not be more than 6% of all the combined values of your contributions in your IRA account at the end of the financial year.
With all these basic knowledge about the IRA contribution limits, it will be easy for you to plan your financial future.