An IRA is an individual retirement account or an individual retirement arrangement provided by financial institutions that provides tax advantages and benefits for retirement savings. Since the benefits are extremely advantageous, there are IRA limits applied to these accounts. The current IRA limit is set at $5500 or your taxable income for the year if it is less than the contribution limit. If you are over the age of 50 years old, your IRA limit increases by $1000 allowing you to contribute $1000 more per year.
Both Roth IRA’s and traditional IRA’s have the same general contribution limits but, there are some differences. A traditional IRA contribution can be tax deductible but, can be limited. If you or your spouses income exceeds a certain level or if either of you are covered by a work retirement plan, you tax deduction will be limited. Roth IRA contributions are limited based on income and filing status.
IRA Limits and Age
- Once you reach the age of 70 1/2, you can no longer make regular contributions to a traditional IRA.
- You can still contribute to a Roth IRA regularly and make rollover contributions to a traditional or Roth IRA regardless of age.
- As stated above, once you reach the age of 50 years old, your contribution limit increases.
Exceeding IRA Limits
Exceeding your limit occurs when you contribute more than your contribution limit, Make regular contributions to a traditional IRA after the age of 70 1/2, Or by making improper rollover contributions. Exceeding these limits will result in a 6% tax per year as long as the excess contribution remains in the IRA. To avoid this, withdraw any excess contributions and any income earned from the excess contribution.
When making IRA contributions, always be sure to ask your broker about these limits or research these limits to ensure that you reach maximum retirement savings.