IRA 2014 Contribution Limits: How Much Can You Sock Away?

Most of us know that if we want to be prepared for retirement, we should be exploiting tax-advantaged investment accounts available to us, such as IRAs. We don't always know how much we can sock away in them, though, and that's kind of important. Thus, it's worthwhile to know the IRA 2014 contribution limits.

First, here's the scoop on IRAs in general. There are two main kinds of IRAs: traditional and Roth.

  • With a traditional IRA, you sock money away on a pre-tax basis and it grows tax-free -- until you withdraw funds from it. At that point, assuming you've followed the rules, the withdrawn dollars are taxed at your income tax rate. That rate in retirement may well be lower than the rate you're taxed at now, while working. Meanwhile, your pre-tax contributions lower your taxable income, so you end up paying less. (In a simplified example, if you earn $50,000 and contribute $5,000, your taxable income drops to $45,000.)
     
  • With a Roth IRA, you contribute post-tax dollars, so your immediate taxes are unchanged. The money grows untaxed in your account until withdrawn in your retirement years. At that point, if you've followed the rules, it's withdrawn tax-free. That can be a big deal if you've saved a lot of money and have invested it effectively.

The limits
So what are the IRA 2014 contribution limits? Well, for most folks, the contribution limits for IRAs in 2014 are $5,500, plus an extra $1,000 for those 50 or older, as a "catch-up" measure, for a total of $6,500.

There are some extra wrinkles to IRA contribution limits, of course (for 2014 and other years). To contribute to a Roth IRA, your contributions must be made with earned money. That's no problem for most of us, but if you're a young person sensibly starting early with your retirement savings, you can't fund an IRA with allowance or bat mitzvah money.

Contribution limits for IRAs in 2014 and other years have some other rules, too. Folks earning any level of income can contribute to traditional IRAs, but folks with above-average incomes may find that their ability to contribute to a Roth IRA is reduced or eliminated. The IRS spells out the details on its website. For 2014, the Roth IRA contribution limits are unchanged for single filers with modified adjusted gross income of less than $114,000 and for married couples who file jointly and have AGIs of less than $181,000.

One way to sort of get around Roth IRA contribution limits in 2014 and other years is to convert a traditional IRA to a Roth one. But run the numbers first, because any sum you convert will be counted as taxable income to you in the year of conversion. (Remember, it was never taxed when it went into the traditional IRA.) Thus, converting large sums can be costly upfront but potentially worth it in the long run. You might even be able to convert your 401(k) to a Roth IRA.

401(k) limits
Because you're here learning about IRA 2014 contribution limits, here's a bonus -- the scoop on contribution limits for 401(k) accounts in 2014. 401(k)s work much like traditional IRAs, tax-wise. The 2014 contribution limits for 401(k), 403(b), and most 457 plans are $17,500, plus an extra $5,500 for those age 50 or older.

Spend a little time reading up on the retirement savings vehicles available to you and the smart tax strategies you can employ, and you may find yourself enjoying a very comfortable retirement.

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Read/Post Comments (5) | Recommend This Article (5)

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.

  • Report this Comment On December 16, 2013, at 12:07 PM, phanley68 wrote:

    Regarding the comment about the taxation of converting from a traditional to a Roth IRA. I believe there are income limits for deducting the contribution to a traditional IRA. So higher income individuals DID pay tax on the contribution, so only the growth in the investment is taxable. Anyone confirm?

  • Report this Comment On December 16, 2013, at 8:04 PM, MTCWBY wrote:

    Phanley68, yes. When it comes time to be taxed the basis is calculated and you only pay on the gains assuming the IRA was non-deductible. Not a CPA but went down this road to convert my IRA to a Roth.

  • Report this Comment On December 17, 2013, at 7:40 PM, kodai wrote:

    The backdoor IRA question: can i contribute cash to traditional IRA and convert the cash to Roth and purchase stocks in the Roth IRA using the cash from the Trad IRA. Would this benefit me greatly by not having to pay any taxes on converting? Is this not too good to be true?

  • Report this Comment On December 18, 2013, at 1:58 PM, brockandersen wrote:

    @Kodai, yes, you can use the backdoor approach. You will have to pay tax on the conversion and it is best to pay the tax with funds outside the IRA. Whether it it will benefit you or not depends on a number of factors: investment horizon, expected ROI, et al.

  • Report this Comment On April 25, 2014, at 1:41 PM, sharpie510 wrote:

    I have a problem I hope you can solve. I am not working at all in 2014 but the company I left in 2013 had granted me stock options (NQSOs) that I had to exercise in 2014. I have a $170000 gain from that transaction and it is going to be treated as w-2 income. Since I no longer work at this company, I cannot contribute to their 401k.

    Is my only option to contribute to an IRA or ROTH IRA for $6500 (I'm over 50)? Can I become self employed an use the gains from the stock exercise to contribute to a SEP IRA?

    Thanks for any help you can provide. I feel like I'm stuck with a huge gain for 2014 with few options to reduce my tax liability.

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