IRA Contribution Limits

Contribution limits for IRAs are established by the IRS and vary slightly according to the type of IRA. Three common types of IRAs: traditional, Roth and SIMPLE. Although the contribution limits may vary, there are general rules that apply. Contributions must originate from compensation from any type of employment income such as commissions, salary and self-employment income. Compensation also includes alimony and combat pay earned by military personnel that is not subject to tax. However, compensation from rental property, pension or partnership income is not eligible for contribution to an IRA. More specific rules vary on the type of IRA.

General Limit

Contributions to a traditional and Roth IRAs are limited to $5,000 annually. However, this limit may change under circumstances allowed by the IRS. For example, individuals at least 50 years of age or older are entitled to a $6,000 annual contribution limit for a traditional or Roth IRA. However, individuals who reach the age of 70 ½ are eligible to contribute to a Roth IRA but no longer eligible to make contributions to a traditional IRA. Persons over the age of 70 ½ may still roll over a previous retirement savings account into a traditional IRA. Investors are advised that IRS rules prohibit contributing more than $5,000 annually. Any IRA contribution over $5,000 or $6000 for individuals over the age of 70 ½ are subject to a 6 percent federal tax on the amount over either limit.

Multiple IRAs

Investors who own more than one IRA are still limited to the general annual contribution. An investor with two IRAs is only allowed to distribute the total contributions of $5,000 or $6,000 if over the age of 50, over the two IRAs.

Joint Spouse IRAs

Spouses who file joint federal income tax returns are each allowed to make annual $5,000 contribution to an IRA even if only one spouse is employed. This is important because under IRS rules only income from employment is eligible for contributions. Married joint filers, however, are exempt from this rule. The unemployed spouse may base the IRA contribution on the income of the employed spouse. In cases of divorce, one spouse may not deduct any contributions to the IRA of the other spouse. Instead, the former spouses may only deduct IRA contributions to their own accounts.

Time Limit

Contributions to an IRA must be made for the current year by the time taxes are due in April every year. For example, contributions for 2012 may be made at any time during the 2012 calendar year and up to April 15, 2013. Under current IRS rules, investors may not use tax filing extensions to contribute to an IRA.

Employee Retirement Plans

Participating in retirement plans sponsored by employers does not impact IRA contribution limits but may decrease the deduction for contributions. Whether an investor may deduct IRA contributions depends on modified adjusted gross income and filing status. According to IRS rules, higher incomes phase out the deduction for IRA contributions while the full deduction is available for individuals and married couples within certain income levels. For example, single filers with less in $56,000 and married couples filing a joint tax return with less than $90,000 in modified adjusted gross income are eligible to take a deduction of the full IRA contribution amount. Couples filing a joint return and with more $110,000 and single individuals with more than $66,000 in modified adjusted gross income are not eligible to deduct IRA contributions.


As with any retirement savings and investment account, investors are advised to know and understand the contribution rules of IRA accounts. This prevents or at least limits avoidable penalties and taxes. Speaking with a trusted financial planner helps investors keep abreast of changing rules and requirements to help maximize the return on retirement savings.

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