Every year the IRS reviews the regulations related to IRA (individual retirement arrangement) accounts. Typically these changes are not significant but you should consult with your financial planner on an annual basis to stay abreast of these changes.
Updates may include changes to Roth IRA income limits, maximum contribution levels impact of multiple IRA accounts and/or tax penalties for early withdrawal . This blog post outlines how the IRA regulations have changed for 2012 contributions.
2011 IRA Contribution Limits Have Not Changed for 2012
Whether you have a traditional or Roth IRA, the most you can contribute each year is five thousand dollars. The contribution limit increases to six thousand dollars if you will turn fifty years old by the end of the year.
If you have a Roth IRA, you are also subject to annual income limits in order to be eligible to make contributions. If your income falls below a certain level, you can contribute up to the maximum amount each year.
2011 IRA Income Limits for Deductions Have Increased for 2012
Although you can contribute five or six thousand dollars to a traditional IRA, you may not be able to deduct the full amount from your income taxes if your adjusted gross income exceeds a certain level. Although the contribution limits have not changed for 2012, the income level for taking the maximum deduction has increased.
- In 2012, if your household income is at least $173,000 you will not be able to deduct your entire contribution. If it exceeds $183,000 you will not be able to take a deduction at all. This is an increase of four thousand dollars from 2011.
- These numbers are further reduced if you participate in a workplace retirement plan like a 401k. For couples with a retirement plan, the phase out begins at $92,000 and ends at $112,000. This represents an increase of two thousand dollars from the 2011 IRA regulations.
Contribution Limits Apply to All Accounts
If you have multiple IRA accounts, the total contribution limit applies to all of your accounts, regardless of whether they are traditional or Roth accounts. This means you have to pay close attention to the total amount you contribute to your various IRA savings plans.
Work with a tax professional or your IRA provider to have a finite grasp for how much you can deduct for contributions to a traditional IRA or whether you are eligible to contribute to a Roth IRA. Understanding the IRA contribution limits is critical to maximizing your retirement savings without being subject to tax penalties.