A Brief Look At IRA Contribution Limits

IRA contribution limits differ. While many people assume that there is a set contribution limit with all of the IRA plans available this is not the case. The regulations and restrictions regarding qualifying for a plan, the contribution limits, and the income limitations all are treated differently with each plan.

The benefit of an IRA is the compounded interest that one earns on the money that is placed in a savings account each month. An IRA is not an investment as many individuals assume. The money cannot be lost as with many investments, and the earnings are not dependent on the stock market or other financial factors. However, The main difference between a regular savings plan and an IRA is that there are heavy fees and penalties assessed if the money is withdrawn before an individual qualifies.

Interest rates on IRA plans can vary greatly between the banks, credit unions, etc., offering the plans. The national average interest is between four and five percent. This can seem like a small return on the money that is placed in savings however when the interest is compounded yearly the amount can grow very quickly with the initial contribution.

The IRA contribution limits on a ROTH IRA are often the most confusing of the many plans that are available. This plan has a contribution limit of $5, 000 per year ($6, 000 if fifty or over), however the limit changes based on the adjusted gross income of the contributor. An individual making an adjusted gross income of over $120, 000 per year does not qualify to participate in a ROTH IRA. A couple with an adjusted gross income of over $176, 000 is also not eligible to participate in this plan. There is also an income range for both individuals and couples that limits the contribution allowed. For couples this is between $166, 000 and $176, 000 and for individuals it is between $101, 000 and $116, 000.

SEP IRAs allow higher contributions by individuals. These are usually administered by the company that an individual works for. They collect contributions from employees and invest into a Traditional IRA. The contributions are not taxed until they are withdrawn after retirement. The IRA contribution limits for an SEP is $49, 000 or 25% of salary/compensation.

There are no income restrictions for a traditional or regular IRA. Many people select this type of IRA and make a single contribution at the end of the year before tax time. With this type of IRA all of the money can be put in at one time or paid on a monthly basis. The contribution limit for this plan is $5, 000 per year ($6, 000 if a person is over fifty).

Several years ago many companies had a 401(k) that employees could contribute to. This became less popular when some people found they had lost their money when a company filed bankruptcy or went out of business. Individual wishing to actively participate in retirement planning can use any of the three IRA plans 401(k), 403(b) or 456. These plans have IRA contribution limits of $16, 500 or $22, 000 for people over fifty. The structure and regulations regarding these IRA plans has changed little since they were first introduced.

The 2010 IRA contribution limits for a Simple IRA is $11, 500 or $14, 000 for people over 50. The added amount is called a "catch up" program. Qualifying for this type of IRA requires that an individual have earned income that is what the allowed limits for contribution is based upon. This plan also offers a benefit to spouses who do not work. With a joint plan a spouse can contribute to the plan using the earning of their working partner.

It's prudent to take full advantage of the 2010 IRA contribution limits, as the earlier and more often you put away the bigger the retirement payoff. It is always wise to seek the advice of a trained professional retirement planner before entering into a long-term savings or investment plan. These individuals know the intricacies of each plan and how it will affect a person's retirement income. By making the right decisions before entering into a program an individual is assured that their dollar is being used to maximize retirement opportunities.