IRAs, or individual retirement accounts, are subject to many rules and regulations that may limit the amount you can contribute. While there is no overall maximum you can contribute to IRA accounts, there are limits for yearly contributions. Age and income are two factors that are important to consider when investing in IRAs.
Age is a major determining factor in how much you can contribute to an IRA. If you are under 50 years old, the maximum contribution you can make as of 2011 is $5,000. This applies to both traditional and Roth IRAs. The exception is if you make less than $5,000 in taxable income, in which case you can only contribute the total of your taxable compensation. If you are over 50, you are allowed to contribute $6,000. Those over 70 1/2 years old must stop contributing to a traditional IRA, but can continue to contribute to a Roth IRA.
Anyone who earns taxable income can contribute up to the maximum for their age to a traditional IRA. For Roth IRAs, the amount you are allowed to contribute as of 2011 may be affected by your income. In order to contribute the maximum for your age, your modified adjusted gross income (AGI) must be less than $107,000 if your tax status is single. If your tax status is married filing jointly, your AGI must be $169,000 or less in order to make the maximum contribution for your age. If you file as single, you can still make reduced contributions if your AGI is less than $122,000. If you file jointly with your spouse, you can make reduced contributions as long as your AGI is $179,000 or less. If you are married but filing separately, you can only make the maximum contribution if your AGI is between zero and $10,000; beyond this you cannot contribute. Remember that if you are married, you can each have a separate IRA and each contribute the maximum allowed for your income. Once you make more than the maximum income, you can no longer contribute to a Roth IRA.
Holders of traditional IRAs must stop contributing and begin withdrawing once they reach 70 1/2 years old. Holders of Roth IRAs can continue to make up to the maximum contribution each year indefinitely at any age.
The more you contribute to an IRA each year, the more it will make in the long run. IRA contributions can be deducted from your taxes in many cases, and contributions are not taxed while they are held in the account. Contributing the maximum allowed is your best bet for making the most of an IRA. Unfortunately, if you contribute less than the maximum during any year, you cannot make up for it by contributing more the following year. It is also important to remember that contributing more than the maximum subjects you to potential IRS penalties.
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