IRA Contribution - What You Need To Know

by : Gavin Sanderson

Starting 2008 and beyond the 2001 Tax Act or the Economic Growth or Tax Relief Reconciliation Act increased the IRA contribution Limits of traditional IRA to $5,000.

IRA contribution for Roth IRA is fixed at $4,000 for those ages 49 and below and $5,000 for those ages 50 and above. An individual’s maximum contribution is determined by his Modified Adjusted Gross Income (MAGI).

For instance if your MAGI is below a fixed level you can qualify for a maximum allowable ROTH IRA contribution, If your MAGI has reached the fixed level, your ROTH IRA contribution is subject to reduction or phasing out. If your MAGI overshoots a fixed range, contributions would no longer be allowed.

If you are single and you’re MAGI is pegged at a range at $95,000 or below, you can avail of a maximum allowable contribution of $4,000. And if your MAGI are at the range of $99,000-$114,000 you are eligible for a partial or phased-out contribution.

If you are married and have filed jointly and your MAGI falls at a range of $156,000 or below then you are allowed to contribute to the maximum amount. Partial or phased-out contribution is for those joint filers whose MAGI have reached a range of $156,000-$166,000.

IRA contribution for Education IRA is pegged at $2,000 annually. If you are a single-filer and your Modified Adjusted Gross Income or MAGI is below $95,000 or your spouse are joint filers and has MAGI at a range of $190,000-$220,000 you can contribute up to the maximum amount of $2,000.

Your allowable IRA contribution limit of $2,000 is gradually reduced if your MAGI breach these income ranges.

IRA Contribution limits for 401k contribution limits are determined by two types of contribution limits. The first limit is the one marked by your employer and the other 401k contribution limit is the one set by the Internal Revenue Service or IRS.

IRC set IRA contribution limit for 401k are pegged at $15,500 for those under 50. And $20,500 catch-up contribution limits for those over 50. The reason for the catch-up contribution is the presumption reach 50 your earning ability can well compensate for an increase in your contributions.

Another type of 401k contribution limits is the one set by the employer. An employer can set-up limits for your contributions, for example if you are a 35-year old employee receiving $40,000 in compensation and your employer sets a IRA contribution limit of 10% of your compensation, it means your maximum 401k contribution limit is only marked at $4,000 even though there is a higher IRS limit.

For IRA contribution limits for SIMPLE plans are determined by the two types of Simple IRA contributions, the first is salary deferral and they can go up to 100% of the employee’s compensation. But must not exceed at $10,000 for 2006, $10,500 for 2007, catch up contributions for plan investors over the age of 50 is pegged at $12,000 for 2006 and $13,000 for 2007.

For all types of IRA, you can throw in up to the allowed IRA contribution limits each year as long as your taxable income for that year is at least equal to that amount. If your taxable income is less than the maximum allowable contribution then your contribution is limited to amount you earned for that year.