All About Money

For those who can afford to put away money in their retirement and savings account, the biggest question is how much to put in. To do so, you need to understand your limits, like the Roth IRA contribution limits and other tax limitations. Unfortunately, most people don’t figure these out until it’s tax crunch time and their scrambling to sock away some retirement savings.

It’s absolutely critical that you understand and are aware of issues related to your IRA contributions, along with other constraints such as those placed on pensions and 401(k)s.

By staying informed, you can plan financially and properly assess your tax savings as part of your overall estate planning both now and when you finally access your IRA funds. But, what are those limitations, and how do they work? To learn the answers to these questions and more, keep reading.

Limits on 401(k) Contributions

In 2006, the U.S. government passed a law that made temporarily high contribution limits (previously set to expire in 2011) a permanent fixture. Today, the annual contribution limit for 401K sits at $15,500 with a $5000 catch-up restriction for those over the age of 50.

Roth IRA and Traditional Contribution Limits

Roth IRA contributions sit at a low limit of $5000 for those under the age of 50. That equals out to almost $417 each month. But, if you’re 50 and older, you can defer $6000 to your IRA. Those limits are set to increase annually in $500 increments, based on current inflation rates.

If you’re currently part of a work-based plan for your IRA and want to convert those to a Roth IRA, there are other constraints in place that could wreak havoc on your plans.

For example, if your MAGI (Modified Adjusted Gross Income) is between $150,000 and $160,000 for a married couple (between $95,000 and $110,000 for a single individual or household head), your ability to deduct those contributions will be phased out.

SIMPLE IRA plans

Employee who are eligible for SIMPLE IRA plans (those funded by salary deferrals and employer contributions) can opt to contribute up to 100% of their compensation, up to a maximum limit of $11,000 each year. Employees and participants who are over the age of 50 can make extra catch-up deferral contributions to an annual limit of $2500.

Roth IRA Catch-Up Plans and Limits

If you’re 50 or over and want to make catch-up contributions to your retirement savings (Roth IRA, traditional IRA, 401(k)), you are limited to $5000 in additional payments per year. Of course, you can contribute more to a 401(k), but these are tax-deductible limitations.

Before you sit down to work out your retirement savings plan, make sure you understand your Roth IRA contribution restrictions and other caps in place on 401(k) contributions and traditional IRAs.

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