The 2013 IRA contribution limits finally went up due to inflation compared to last year. Inflation is bad, but getting to contribute more to your retirement is good.
Traditional IRA and Roth IRA
These Individual Retirement Arrangements or Accounts (IRAs) were created to provide a tax incentive to save for your own retirement. They are both excellent tools to help you in your efforts to secure a comfortable retirement. I have both types of accounts and I can tell you they are easy to setup and maintain: very similar to savings accounts. Contributions to your traditional IRA are generally tax deductible in the year you made the contribution. Contributions to a Roth IRA are not tax deductible, but the qualifying distributions you make from it are free from taxation. Because of these two advantaged, the IRS imposes annual limits on the contributions you can make to these accounts.
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The Contribution Amounts Are Per Person and Split Across Accounts
A couple of points before we look at the contribution limits. First, there is no such thing as a joint IRA account. You, and you alone are assigned to your IRAs. Not your kids, not your spouse. Just you. Also, you can have multiple IRAs. You can have as many traditional and Roth IRAs as you would like. However (and this is the important part) your contribution limits are applied to your contributions across all accounts. For example, let’s say you have a traditional IRA, a traditional (Rollover) IRA, and a Roth IRA. You can only contribute up to the limit, split across all accounts in total. Now let’s look at those limits for the current year:
For Those That Will Be Under 50 at the End of 2013
The maximum that you are able to contribute to a traditional or Roth IRA is going to be the lesser of $5,500, or the dollar amount of how much you made (your taxable compensation) for the year. In other words, you can’t contribute more than you earned. I’m so glad to see this being bumped up by $500 from the year before. It’s been a while since we’ve seen an increase. Also, keep in mind that your annual income can reduce the amount you are able to contribute to your IRAs. See my exhaustive rundown of the Traditional and Roth IRA income limits.
Catch-Up Contribution (50 Years of Age or Older at the End of the Year)
Because IRAs haven’t been around that long, and just because it’s a nice gesture (I guess), if you are 50 or older, you can contribute “catch-up” contributions to an IRA. So, if at the end of this year you are 50 or older, you can contribute the lesser of $6,500 or the dollar amount of how much you made (your taxable compensation) for the year. These contributions are also limited by your income. See IRS Publication 590 for all the dirty details.
Contribution Limit Table Showing Previous Year Contribution Limits
Let’s take a look at how the annual contribution limits have changed over the years. As, you can see, we’ve been holding pretty steady at current levels for quite some time. Back in the early oughts we got used to frequent increases. Now we have seen a significant slow down in the increases.
Why These Limits Matter
Use these contribution limit numbers to help you plan your retirement savings this year. If your goal is to reach the maximum (a great idea), then be sure to set up automatic contributions to your IRA to ensure that you get it done. You don’t want to be waiting till the end of the year (or the date you file your taxes) to start thinking about contributing. Happy saving!