IRA Contribution Limits And Your Retirement Account

Age should not be the determining factor when thinking about the future and making retirement plans. A traditional IRA account is a beneficial way for individuals to prepare for retirement. This type of individual retirement plan or IRA allows interested parties to save money a little at a time for their future retirement.

Traditional IRA’s are an attractive retirement option and there are only a few simple eligibility requirements.

• All participants must be under the age of 70 1/2 at the end of the year in order to actively contribute to the IRA.
• Those individuals who do not have a source of income such as wages from a job or a set salary will not be able to contribute to a Traditional IRA.

Lucrative tax benefits are just one of the perks that those who qualify for a Traditional IRA will experience. It is important to note that any money that you contribute to your Traditional IRA retirement plan is tax deferred. This simply means that you are not responsible for paying taxes at that point for any money that you put into your fund. Taxation begins only at after the individual begins to withdraw their money. Generally you fall to a lower tax bracket and pay less tax on your income. During tax time any money that was put into the Traditional IRA account is deductible.

Anyone who is interested in a Traditional IRA plan should be aware of the yearly contribution limits.

• $5,000 is the maximum contribution for 49 and younger.

The limit is $6,000 if you are over the age of 50. April 15, the yearly tax deadline is the last chance for individuals to make deductible contributions to their Traditional IRA. You can make contributions during the next year and still count them on your income tax as long as they are by April 15.

• Tax deductions and other benefits are available as soon as you begin to contribute.
• Your total income is not a determining factor when trying to open a Traditional IRA.
• Most people see a decrease in their income when they retire and they move to a lower tax bracket which results in lower taxation.
• It is important to take think things out carefully when considering a Traditional or Roth IRA or a 401k plan.

Disadvantages are possible if you choose the Traditional IRA plan over the other plan types.

• The IRS has the power to take part of your money if you have not started making withdrawals by 70 1/2. All contributors must begin to make regular withdrawals at 70 1/2 or they face penalties from the IRS.
• If you take your money out before you reach the age of 59 1/2 you are assessed a penalty if you have a Traditional IRA instead of a Roth.
• If you have the opportunity to get in a retirement plan at work, you may run into eligibility problems when trying to make your tax deductions.

You should always carefully compare each retirement plan and then choose the one that matches your specific needs. In some cases a Traditional IRA is the answer but some people may choose instead to split their money up between different retirement funds.

Confused about the differnce between Roth IRAs and traditional IRAs? To find out about Roth IRA rules, go to: Roth IRA Information.