Traditional IRA and Roth IRA Contribution Limits

An Individual Retirement Account (IRA) is a financial investment plan which allows you to contribute a share of your earnings every year. Persons who have crossed the age of fifty can contribute even more to their individual retirement account. Any citizen can make contribution to an IRA if he has got his earnings more than the contribution for the specified year. For the persons below the age of 50 have the maximum contribution limits designed per year, while those who are 50 years of age or more can make additional "catch up" contributions.

The Traditional and the Roth IRA are the two common types of Individual Retirement Accounts. In case of Traditional IRA, all built up dividends, interests and capital gains are tax free until the money is withdrawn. On the contrary, all dividends, interests and capital gains are tax free if a person qualifies for it, meeting certain criteria.

Contribution Age Limitations
Federal Government has imposed certain age limitations for the contributions to IRA. So, it’s better to have a good look at both IRAs and consider their age limits before taking any decision. In traditional IRA, you are not permitted to make any contribution once you reach the age of 70.5. On the contrary, there is no age limit for Roth IRAs.

Income Limitations
There are certain eligibility conditions related to your income for IRAs. In fact, income is the one factor which determines and dictates your eligibility to contribute to Roth Individual Retirement Account. You must fulfill following conditions to become eligible for Roth IRA.

1. If you are married and filing a joint tax return, then your income should not exceed $160,000.

2. If you are married, living with your wife for any period during the specified tax year, but filing a separate tax return; then your income should not exceed $100,000.

3. If you are filing your tax returns as "single", "head of household" or "married filing separately" and did not live with your spouse at any time during the tax year, then your income should be below $110,000.

If your income exceeds the limitations mentioned above, you will not be able to contribute to a Roth IRA. Even, your Roth IRA contribution limit can be lowered if your income comes within certain ranges. However, there are no restrictions posed to Traditional IRA contributions.

Annual Contribution
Annual Contribution is the amount you can contribute to an IRA each year. For example, in the year 2006, the maximum annual IRA contribution allowed is $4,000 per individual. It is essential to understand that this is the total upper limit which can be contributed to all of your IRA accounts.

IRA Contribution Limits
Whatever type of IRA you opt for; the Federal government has imposed certain annual contribution limits. The contribution limits for both the Roth and Traditional IRAs are same.

It is not necessary to make deposits into your IRA at the same time and at the single time in a year. For example, in the year 2008, a woman below the age of 50 has got the contribution limit $5000. So, she can deposit the whole amount at the start of the year or she can regularly deposit $416.67 into her IRA every month. At the end of the financial year, it would add up to the uppermost limit permissible- that is $5000.

1. For the investors below 50 Years of age
a. For the years 1998 to 2001, the maximum contribution limit remains $2000.
b. For the years 2002 to 2004, the maximum contribution limit remains $3000.
c. For the years 2005 to 2007, the maximum contribution limit remains $4000.
d. For the year 2008, the maximum contribution limit will remain at $5000.

2. For the investors above 50 Years of age
a. For the years 1998 to 2001, the maximum contribution limit remains $2000.
b. For the years 2002 to 2004, the maximum contribution limit remains $3500.
c. For the year 2005, the maximum contribution limit remains $4500.
d. For the year 2006 to 2007, the maximum contribution limit will remain at $5000.
e. For the year 2008, the maximum contribution limit will remain at $6000.
After the year 2008 onwards, the contribution limit will elevate in increments of $500 depending upon the level of inflation.

Splitting Your Contribution
If you are found eligible to contribute for the both types of IRAs, then you would like to split your contributions between your both IRAs. Nevertheless, your total contribution to both IRAs still must not exceed the limit for that tax year.

If you decide to divide your contributions between both IRAs, you may choose to contribute the deductible amount to your Traditional IRA and the balance to your Roth IRA. For example if the maximum amount you could have deducted for the 2005 tax year was $2,000, then you could've contributed $2,000 to your Traditional IRA and the balance of $2,000 to your Roth IRA.

But you must consider additional fees before splitting your IRAs, like maintenance fees charged by your IRA trustee for maintaining two separate IRAs. By placing your bulk trades into one IRA instead of splitting in two could help you save on trade-related fees. Finally, consider the short-term benefits as well as the long-term benefits and take the final decision.