Maximum Amount of Money to Contribute to an IRA

Maximum Amount of Money to Contribute to an IRA
You may reduce your taxable income with IRA contributions up to a limit that the IRS specifies.

Traditional IRA Maximum

The maximum you may contribute to a traditional IRA if you are younger than 50 is $5,000 a year as of 2010. If you turn 50 at some point during the year, you may contribute up to $6,000. If your total taxable income is less than $5,000 -- or $6,000 if you are 50 or older -- then your income amount is the maximum you may contribute.

Roth IRA Maximum

The limits are the same for a Roth IRA as they are for a traditional IRA. If you have both a traditional IRA and a Roth IRA, the annual limit applies to both accounts combined. In 2010, for example, you may contribute no more than $5,000 total to the two accounts if you are younger than 50, or $6,000 total if you are 50 or older.

Penalty

If you exceed the maximum contribution to your IRA in any year, you may avoid paying a penalty by withdrawing the excess contribution by the date your tax return for that year is due (usually April 15). If you fail to withdraw the excess contribution, as well as any interest it generated, by that date, the IRS may levy a tax of 6 percent on the excess.

Annual Adjustments

The maximum you may contribute to your IRA potentially changes each year as the IRS takes into account adjustments to the cost of living. The maximum rose to $5,000 in 2008 and stayed there through 2010. It was $4,000 in 2005 to 2007 and $3,000 in 2002 to 2004. The additional amount that you could contribute if you were 50 or older was $500 in 2002 to 2005 and $1,000 in 2006 to 2010.

Limits on Deductions

If you have a work-based retirement plan, such as a 401k, and your modified adjusted gross income is more than a certain amount, the IRS will not permit you to deduct the full amount of your IRA contribution from your taxable income. In 2010, if your modified AGI is between $56,000 and $66,000, you may take only a partial deduction on your IRA contribution. If your modified AGI is more than $66,000, you may not take any deduction on your IRA contribution. For married couples who file a joint return, the phaseout begins at $89,000.