Individual retirement accounts (IRAs) allow Americans to build a nest egg for retirement. IRAs are available through banks, credit unions and investment firms. These financial institutions offer a variety of options for investing retirement funds, such as stocks, bonds, certificates of deposit and money market accounts. However, many people wonder how much money per year they can invest in an IRA.
Contributions for Those Under Age 50
According to the Internal Revenue Service (IRS), IRA plan holders under the age of 50 by the end of 2009 can contribute a maximum of $5,000. If you have both a traditional IRA and a Roth IRA, contributions for both plans can’t exceed the limit. For example, if you have $2,000 in a traditional IRA and $3,000 in a Roth IRA, they are within the IRS limits. However, if you contribute $5,000 to a traditional IRA and $5,000 to a Roth IRA, they have exceeded the maximum contributions, according to the IRS.
Contributions for Those Over Age 50
IRA plan holders over the age of 50 can contribute a little more to their plan, according to the IRS. Those over the age of 50 can contribute $6,000 a year to their IRA.
This contribution amount can be spit between a traditional and a Roth IRA, but the combined amount of the two accounts can’t exceed $6,000. For example, you may have contributed $3,000 to a traditional IRA and $3,000 to a Roth IRA, for a total of $6,000 (which is within the IRS limits).
Roth IRA vs. Traditional IRA
Many people planning how much to contribute to an IRA want to know the difference between a Roth IRA and a traditional IRA. With a traditional IRA, taxes are paid when money is withdrawn from the IRA. These IRAs are available to anyone; there aren’t any income restrictions. Contributions can be deducted when filing taxes.
Roth IRAs are available to married couples making up to $150,000, and single people making no more then $95,000. Earnings on a Roth IRA are tax free; however, you can’t deduct contributions when filing taxes. Contributions can be used to invest in stocks, certificates of deposit and bonds.
Nicki Howell started her professional writing career in 2002, specializing in areas such as health, fitness and personal finance. She has been published at health care websites, such as HealthTree, and is a ghostwriter for a variety of small health care organizations. She earned a Bachelor of Science in business administration from Portland State University.