IRA Contribution Limits for 2012 and 2013

As of this writing, we're less than two weeks away from the deadline for 2012 IRA contributions. IRAs, or Individual Retirement Arrangements, are an absolute must in saving for retirement. IRAs allow individuals to save for retirement and not pay taxes on their investments as they grow, but to make proper use of them, you need to know the IRA contribution limits that apply to these tax-favored accounts.

The two basic types of IRAs
Traditional IRAs allow your investments to grow tax-free until they are withdrawn. Contributions to traditional IRAs can be tax-deductible depending on whether you have a retirement plan through work and on your income level.

Roth IRAs also allow your investments to grow tax-free; however, contributions are never tax-deductible. The benefit of Roth IRAs is that withdrawals can be tax-free as long as you meet certain requirements.

IRA contribution limits
If you can save enough to do so, it's well worth it to contribute up to the maximum allowed. However, you should only contribute if you don't foresee yourself needing the money until you retire. You pay a penalty on traditional IRA withdrawals before the age of 59 1/2, except under limited circumstances. Roth IRAs are somewhat freer about allowing withdrawals of your original contributions under certain circumstances, but it's still smarter to keep money within the account until retirement.

You can contribute to traditional IRAs only until you are 70 1/2, while there's no age limit on Roth IRA contributions as long as you have earned income.

The IRA contribution limit is whichever is less: an individual's total earned income or the amount shown in the following table.

IRA Contribution Limits for 2012 and 2013

 

Under Age 50

Age 50 or older

2012

$5,000

$5,500

2013

$5,500

$6,500

Source: IRS.

Roth IRA contribution limits
Roth IRA contribution limits are the same as for traditional IRAs; however, if you earn more than a certain amount, then you may not be allowed to contribute to a Roth IRA at all, or may only be allowed to contribute a reduced amount. This is based on your filing status as well as your Adjusted Gross Income or AGI.

Roth IRA contribution limits for 2012

Source: IRS.

Note the middle categories ranging from $173,000 to $183,000 of AGI for joint filers and from $110,000 to $125,000 for single filers. You can find details of the calculation of reduced contribution limits for 2012 Roth IRAs here.

Roth IRA contribution limits for 2013

Source: IRS.

The middle categories for 2013 have been adjusted upward for inflation. You can find details of the calculation of reduced contribution limits for 2013 Roth IRAs here.

More questions?
If you have more questions on IRAs, check out The Motley Fool's IRA center.

Or, if you need to open an IRA, head over to our broker center where you can compare online brokers.

Whether you're using a traditional IRA or a Roth, the best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report "3 Stocks That Will Help You Retire Rich" names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.


Read/Post Comments (0) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2344742, ~/Articles/ArticleHandler.aspx, 9/19/2014 2:03:20 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement