What Is The IRA Contribution Amount?
The amount that a person may contribute to an Individual Retirement Account is dependent upon the amount he earns and subject to limitations on a particular type of IRA he is contributing to. For instance if a person has a total compensation of $2,000 for the calendar year, then the allowable IRA contribution amount is equal to his compensation of $2,000.
However for those individuals with higher compensation there are set maximum IRA contribution amounts varying on a particular IRA plan.
For traditional IRA contribution amount the limit is $4,000 with a catch-up contributions for those reaching 50 years old in the amount $5,000. However, traditional IRA bars those who have reached 70.5 years from contributing to the IRA. By 2008 maximum IRA contribution amount for tradition IRA will be pegged at $5,000 and catch up contributions at $6,000.
If a person aged below 50 receives a compensation of $5,000 for the calendar year then he is only allowed to the maximum IRA contribution amount of $4,000. The rationale for the catch-up IRA contribution amount limit is that those people ages 50 years old have the ability to contribute more to their IRA fund. The maximum allowable Roth IRA contribution is the same as traditional IRA. For SIMPLE IRA the limit is set at $10,500 with catch up at $13,000. For 401(k) and 403(b) maximum allowable IRA contribution amount is set at $15,500 and catch up contributions at $20,500. Normally the IRA contribution amount increases every year, usually at an increment of $1,000. However after 2008 the increments will be marked at $500 factored in with the adjustments of the prevailing cost-of-living. The yearly increments will benefit owners of the IRAs. They now can make larger contributions and also MAGI limits have increased thus many more will be eligible for tax-deductible contributions. Simply said, the more contributions the bigger tax-sheltered savings they have in their accounts. Roth IRA contributions are dependent on the participant’s Modified Adjusted Gross Income or MAGI. Fixed ranges of income provide for maximum allowable contribution, a reduction or a phasing-out of their contributions or no contributions is allowed at all. In 2006, the HERO or Heroes Earned Retirement Opportunities Act was passed. It is a new law aimed to widen retirement benefits for those soldiers or personnel of the Armed Forces serving in the combat-designated areas like Iraq and Afghanistan. Under the law their tax-free combat pay is now considered as earned income or eligible compensation. Their tax-free combat pay can now be used to determine the IRA contribution amount both for traditional and Roth IRAs. Before the HERO act a member of the Armed Forces whose compensation only consists of tax-free combat pay is ineligible to contribute to either traditional or Roth IRA. Married individuals who would want to contribute to the IRA of their spouses (who has no earned income) can do so. The spousal IRA contribution amount is equal to the earned compensation, the contribution limit or whichever is less. Be reminded that IRA contribution amount limits both apply to you and your spouse. For instance a married individual who is also making spousal IRA contributions can have a maximum IRA contribution amount of $8,000 which will be applied to you ($4,000) and also to your spouse ($4,000). Whichever IRA contribution amount you are allowed to give, it is best to take note that it is like contributing to your retirement funds which you can use when you are no longer able to work and toil regularly. It is really like saving for the rainy days.
Ira Contribution
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