IRA Contribution Limits Are Important To Know

Being financially ready for retirement is something that adults should be considering. Individuals who are looking for a way to prepare for retirement may want to consider a Traditional IRA account. This type of individual retirement plan or IRA allows interested parties to save money a little at a time for their future retirement.

Individuals who are interested in the beneficial Traditional IRA retirement plan must meet a few minor requirements.

• A Traditional IRA is designed so that all individuals must have a source of income in order to contribute.
• Those individuals who have surpassed the age of 70 1/2 by the end of the year are no longer eligible to contribute.

Great tax benefits are available to those who qualify for a Traditional IRA retirement plan. Any money that you put into a Traditional IRA is tax deferred. You do not have to pay income taxes on your Traditional IRA contributions. This simply means that you are not responsible for paying taxes at that point for any money that you put into your fund. Individuals who retire at 70 1/2 or sooner, are taxed once they start withdrawing their money. By the time you reach retirement age you are probably in a lower tax bracket which results in less tax. Income transferred into a Traditional IRA account is considered deductible income.

You must follow the yearly contribution and deduction limits for your Traditional IRA retirement plan.

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

The maximum contribution for those 50 and older is $6,000. In order for your Traditional IRA contributions to be counted as deductions for the year they must be received before the April 15 income tax deadline. Even contributions made the following year can be applied to your income tax if you beat the tax deadline.

• You can also benefit by paying less tax on your money if you anticipate being in a lower tax bracket.
• Plan perks such as the tax deductions are effective immediately.
• Go over each of your possible options carefully before you choose to invest in a Traditional or Roth IRA or a 401k plan.
• Regardless of your income you have the opportunity to contribute to Traditional IRA plans.

A Traditional IRA is sometimes not the best option plan.

• The Traditional IRA retirement plan penalizes any person who withdraws from their account before they are 59 1/2.
• Normal contribution deductions may be in jeopardy if you have a retirement plan available at your job.
• The IRS can assess strict penalties on individuals who do not start withdrawing their money by 70 1/2.

Choosing the right retirement plan can be overwhelming so a good rule to thumb is to compare each plan and choose the one that fits your exact needs. You may decide to start a Traditional IRA or even split funds between it and a Roth IRA or 401k plan.

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