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Traditional and Roth IRA Contribution Limits

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You have more time than you might think to contribute to your 2012 traditional and Roth IRAs. Rather than an end-of-year deadline, you have until you file your 2012 taxes to make that contribution. Federal taxes for 2012 will be due on April 15, 2013, so this is the deadline for establishing and contributing to your 2012 IRA. If you file for an extension, however, your IRA deadline will not be extended; don’t miss the April contribution deadline.

If you’re under age 50 and contributing to your 2012 IRA, the maximum you can contribute to your Traditional and Roth IRAs combined is $5,000. Unlike the past several years, that contribution limit is increasing for 2013 IRAs. In the coming year, taxpayers will see a $500 increase in the maximum contributions. Once 2013 begins and you establish your 2013 IRA contributions, the maximum increases to $5,500. Taxpayers over the age of 50 can make an additional contribution of $1,000 for 2013 between both types of IRAs for a total of $6,500.

Year Under Age 50 50 and Older Standard Deadline Open an IRA
2009 $5,000 $6,000 April 15, 2010 E*TRADE ShareBuilder
2010 $5,000 $6,000 April 18, 2011 E*TRADE ShareBuilder
2011 $5,000 $6,000 April 17, 2012 E*TRADE ShareBuilder
2012 $5,000 $6,000 April 15, 2013 E*TRADE ShareBuilder
2013 $5,500 $6,500 April 15, 2014 E*TRADE ShareBuilder

These contribution maximums are further limited by taxable compensation. If you only earned $3,000 in taxable compensation in any year, that is your IRA contribution limit in that year.

Traditional IRA rules

Contributions to a traditional IRA are tax deductible, but depending on your income and employment situation, the amount that can be deducted from your income varies. Any taxpayer not covered by a retirement plan from their employer can deduct their traditional IRA contributions in full. In 2013, for those who are covered by a retirement plan at work, when modified adjusted gross income reaches a certain level, the allowed deduction for traditional IRAs begin to decrease to zero. If you’re in this situation, you can still contribute to a traditional IRA, but you won’t benefit from the tax deduction as much or at all.

Here are the rules for those who are offered a retirement plan by their employers:

  • Single taxpayers or heads of household can deduct the full amount of their contribution if their modified adjusted gross income is up to $59,000. Between that amount and $69,000, taxpayers can take a partial deduction. At $69,000, the deduction is completely phased out.
  • Married taxpayers filing jointly (and qualified widows and widowers) can take the full deduction up to a modified adjusted gross income to to $95,000. The deduction phases out through $115,000.
  • Married individuals filing separately can only take a partial deduction up to $10,000 in income.

If you are not covered by a retirement plan at work, the limits are more favorable.

  • Single taxpayers, heads of households, and qualifying widows and widowers can deduct their full Traditional IRA contribution, regardless of income.
  • Married taxpayers filing jointly can also deduct their full contribution unless their spouse is covered by a retirement plan at work. If that is the case, with a modified adjusted gross income (MAGI) of $178,000, the deduction phases out until the taxpayers reach an income of $188,000.
  • Taxpayers who are married but filing separately can take a partial deduction through a modified adjusted gross income of $10,000, at which point the deduction is completely phased out.

Roth IRA rules

Your income limits your ability to contribute to a Roth IRA up to the maximum. This is different than the traditional IRA, where income affects tax deductions. Here, income limits contributions. You could be penalized by the IRS if you contribute to your Roth IRA beyond your allowable limit.

  • Those filing as single, head of household, or married filing separately, can contribute the full $5,500 (or $6,500 if over age 50) to a Roth IRA as long as the MAGI is under $112,000. The limit begins to phase out until the MAGI reaches $127,000.
  • Married taxpayers filing jointly (and qualified widows and widowers) can contribute the full amount to a Roth IRA while having a MAGI of under $178,000. The maximum decreases to zero as the MAGI approaches $188,000.
  • Taxpayers who are married but filing separately can contribute the full amount with a MAGI of $0, but the contribution maximum phases out to zero as the MAGI approaches $10,000.

Plan for 2013

An IRA is an important piece of a retirement plan, and it should be high on most people’s priority lists, right below investing in a 401(k) up to the employer’s matching maximum.

If you have a good idea of what your income and tax situation will be in 2013, you can determine how much you can and will contribute to your 2013 IRA throughout the year. A convenient way to contribute is through automatic investments, so you can set it by December 31 and forget about it for the entire year. If you plan to invest in the stock market and don’t want to invest in the IRA with your full year’s contribution at once, you can take advantage of dollar-cost averaging to reduce your exposure to swings in the market.

Set up an automatic transfer from your checking account to your IRA custodian of choice. I use Vanguard for my retirement funds, for example. Because there is no cost to transfer, I would create a plan that places my investment each week. With 52 weeks in a year and a $5,500 maximum contribution, that’s about $105.76 a week or $458.33 a month.

Photo: Flickr

Updated October 21, 2015 and originally published November 6, 2012. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 149 comments… read them below or add one }

avatar tom foster

my company had a retirement for the employees in witch they froze, when i became 75 i retired and am getting $70.00 a month from jp morgan. I would like to go back and work for this co. an i am not getting enough income to live on. can this be done.

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avatar Amanda Flowers

My father is 70 years old. He has been retired for 2 years and has most of his money in traditional IRA’s. I am trying to start up a business in which my father wants to help me with, however he is worried sick that he we be taxed upto 30% if he takes out $100,000. Is there any way around avoidiing the extra taxes and sending him into a higher tax bracket? All the money will be going towards a business investment.

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avatar SomeGuy

Amanda, you two should look into a self-directed IRA. They allow investments in things other than traditional vehicles (equities, bonds, index funds, etc). I know folks who have used them to direct their IRA funds to buy investment real estate. I would consult with an accountant and tax attorney before doing anything.

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avatar Suzanne

Very nice detailed information. If you’re over age 50, you certainly have the incentive to contribute more. I think hedging your bets by contributing after tax money to your roth ira is just plain smart. Thanks.

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avatar Jackie S.

Is it worth it to contribute to a Roth IRA if you won’t max it out? Right now I’m focused on paying off student loans & maxing out my company-match 401k, but I do want to open a Roth IRA. Should I open now, even if I can only contribute ~$100/month ($1,200/year), or should I wait ~2 years until loans are paid off (I’m 23 years old now).

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avatar Cherleen @ My Personal Finance Journey

Jackie, I would suggest that you start saving for your retirement now. Even a small amount will still earn interest and a big contribution when you retire. You can always increase your contribution anytime or as soon as you pay off your student loans.

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avatar Jason

Jackie, I suggest that you first write a monthly budget for encompassing every dollar you bring in to your household. Then set aside $1k as an intermediate emergency fund. Then focus on paying off all your debts, except your mortgage if you own a house, before you start contributing to a retirement account. After all your debts are paid off, minus the house, establish a fully developed emergency fund of 3-6 months of your living expenses. THEN, get started on saving for retirement. As a rule of thumb, you should be putting back 15% of your take-home pay into retirement accounts. Prioritize by matching your company’s match-limit first and then go into a ROTH IRA next. If you still have money left to contribute towards retirement (up to 15%) after maxing out the ROTH IRA, continue with putting it in the 401k. If you have the time, listen to the free financial advice of Dave Ramsey – you will thank me later!

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avatar Charles

So, if my wife and I file jointly, can we EACH deposit $5,500 in our OWN Roth IRAs, for a grand total of $11,000, or can we only have a single Roth IRA between us for a grand total of $5,500 a year? Also, does the same hold true for an employer 401k plan?

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