Are you a good saver? Has your business become much more profitable in the last few years? Are you hoping to put some money away for the future and retirement?
Nearly every taxpayer knows about IRAs. They are typically the small savers and self-employed person’s means of building their nest egg. So how much are you able to put into an IRA each year? What are the limits? What if you add more than the contribution limit? How do these limits apply to taxpayers in different situations?
Here is the short and simple road map for IRA contribution limits:
For 2007, the contribution limit for traditional IRAs is $4,000. However, Congress began providing a “catch up” limit of an additional $1,000 in 2007 for taxpayers over age 50, which made the total contribution limit $5,000 for them for 2007.
In 2008, the contribution limit is raised by another $1,000 for all taxpayers, so for those under age 50, you are now entitled to a $5,000 tax exempt contribution to your traditional IRA, and for those over age 50, you are entitled to a $6,000 contribution to a traditional IRA. Going forward, the limits will be indexed for inflation, going up in $500 increments.
Roth IRA contribution limits parallel those for traditional IRAs in every tax year. In other words, the limits are the same for a Roth as those described above. This is true even though the contributions themselves are not exempt from tax as is the case with a traditional IRA.
To use a free IRA calculator visit TurboTax Online. See how much can you contribute to an IRA and what the tax impact is.
Don’t delay, good planning will help you minimize the tax bite and do what is best for you!
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