How Much Money Can I Add to an IRA Every Year?

by Craig Woodman
Careful attention must be paid to HSA contribution limits as penalties are severe for exceeding the limit.

Careful attention must be paid to HSA contribution limits as penalties are severe for exceeding the limit.

An individual retirement arrangement allows a taxpayer to establish an account to allow him to save while deferring or eliminating taxes. By contributing to these tax-advantaged accounts regularly and utilizing the power of compound interest and time, an individual may build a solid nest-egg to help pay his living expenses in retirement. The IRS imposes strict limits on how much a person may contribute to an IRA annually.

Traditional Deductible IRA

For people under age 50, the maximum contribution that may be made to a traditional IRA in all circumstances is $5,000, or the taxable compensation of the taxpayer, whichever is lower. If you are over age 50, you may contribute an additional $1,000, for a total of $6,000, or your taxable compensation, whichever is lower. If you and your spouse do not participate in an employer-sponsored retirement plan, the full amount of the contribution may be deducted from your taxable income.

Deductible IRA Phase-out

Your IRA deduction may be phased out if you are covered by a retirement plan at work, depending on your adjusted gross income. If you are single, your deductible IRA contribution begins to phase out when you reach $56,000 in adjusted gross income, and is eliminated completely at $66,000. The phase-out range for married people who both participate in an employer plan is between $90,000 and $110,000. If you are married with a participating spouse, but you do not take part in an employer plan, the range is from $169,000 to $179,000. Married people who participate in an employer plan with a spouse who does not take part see their deductions for a traditional IRA phase out when they earn between $90,000 and $110,000 in adjusted gross income. You may still contribute the maximum amount regardless of income, but it will not be tax-deductible.

Roth IRA

The maximum that may be contributed to a Roth IRA is $5,000 per year if you are age 50 or under and $6,000 per year if you are older than 50. The allowable Roth contribution phases out if you are a single taxpayer with between $107,000 and $122,000 in AGI. For married people filing jointly, the phase-out begins at $169,000 and contributions may not be made if your AGI is over $179,000. For a married person filing separately with AGI of more than zero but less than $10,000 the amount that may be contributed is reduced; with AGI of $10,000 or more, no contribution is allowed.

Roth IRA Benefits

Contributions made to a Roth IRA are not tax deductible. However, you may make withdrawals from a Roth IRA tax-free when you reach age 59 1/2. Roth contributions may be withdrawn tax-free at any time.

Healthcare Savings Account

The Healthcare Savings Account is a type of IRA that people who have high deductible health insurance policies may set money aside to pay expenses related to health care and — possibly — retirement expenses. An individual who has a qualifying high-deductible health plan may contribute $3,050 per year to an HSA, and a person providing coverage to his family may deduct $6,150. You may add $1,000 per year to these amounts if you are over 50. HSA deductions are not dependent on the taxpayer's AGI; they are available to taxpayers of all income levels.

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