2011 IRA Contribution Limits
December 8, 2010
IRA Contribution Limits 2011
IRA contribution limits are updated every year so that your traditional IRA and Roth IRA contributions have a chance of keeping up with inflation and the resulting cost of living increases.
Some years the contribution limits donâ€™t change, the ones released by the IRS a few months ago donâ€™t have a cost of living increase.
2011 Contribution Limits for Traditional and Roth IRAs
For tax year 2011, you can still contribute $5,000 to your IRA if you under the age of 50. If you are older than 50, you can make an extra “catch up” contribution of $1,000, bringing your total to $6,000 for the year.
It is important to note that you do not get to make a $5,000 contribution to each type of IRA. Instead, the limit applies to your combined IRA contributions. So, if you put $3,000 in your Roth IRA, you cannot put more than $2,000 in your Traditional IRA. You can, however, have a separate IRA set-up for your spouse. If you are married, you can each have an IRA in your name, which allows you to make a total household contribution of $10,000 ($12,000 if you are both over 50) for the year. If you have a stay at home spouse, it is possible to make contributions to an IRA in his or her name; this type of arrangement is often referred to as a spousal IRA.
SEP and SIMPLE plans have not changed for 2011. SEP minimum compensation remains at $550 and the maximum remains at $245,000. SIMPLE contributions remain the same at $11,500 with a catch up for those 50 and older of $2,500.
You can make 2010 tax year contributions to your IRAs until April 15, 2011 as long as you specify which tax year the contribution should be counted toward.
Phaseouts for IRA Contributions
There are phaseouts for Roth and Traditional IRA contributions. With a Roth IRA, you can only contribute if you meet certain income requirements. With a Traditional IRA, your ability to take a deduction phases out with a certain income. Phaseouts have actually changed a little bit, so it is important to be aware of them:
- Traditional IRA: Phaseout begins at $56,000 for those filing with single status, and the deduction disappears at $66,000. For those married filing jointly, the phaseout starts at $90,000 and completes at $110,000.
- Roth IRA: Phaseout begins at $107,000 for single filers, and contribution phaseout completes at $122,000. For married filing jointly, contribution limits begin falling at $169,000 and no more contributions can be made at $179,000.
You can get more information about contribution limits and phaseouts at the IRS web site.
Traditional IRA vs. Roth IRA
An IRA is a good idea, since it provides tax advantaged retirement savings. This allows you to maximize your money in a way that can’t always be done with regular investment accounts that do not have special advantages. The main difference between Traditional IRAs vs Roth IRAs are the tax advantages.
With a Traditional IRA, the money you contribute is considered pre-tax. This means that your contribution lowers your taxable income, and can help you reduce the amount you pay in taxes now. However, when you withdraw the funds in later years, you have to pay taxes on the amount you withdraw.
Roth IRA contributions are made with after tax dollars. They don’t lower your taxable income right now, but your earnings are tax free. Later on, when you withdraw money from your Roth IRA, you will not have to pay taxes on the distributions.
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