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Key IRA Limits in 2014

Individual Retirement Arrangements (IRAs) -- commonly referred to as Individual Retirement Accounts -- provide a great way to save for your retirement in a tax-advantaged manner. Money grows in IRAs completely tax deferred and you may either qualify for a tax deduction on your contributions or the ability to take qualifying withdrawals completely tax free.

Because those benefits are so strong, Congress has placed limits on how you can fund your IRA. Limits in 2014 are pretty consistent with 2013 levels, and most people won't notice any difference.

Key IRA limits, 2014 edition:
Contributions: The maximum amount people under the age of 50 may be able to contribute to their IRA in 2014 remains $5,500. For those ages 50 and up, an additional $1,000 "catch-up" contribution is typically available, for a total limit of $6,500.

Age for contributions: If you reach age 70 1/2 or older by the time 2014 draws to a close, you may not contribute to a traditional IRA. That age restriction does not apply to Roth IRA contributions. There is no minimum age to contribute to an IRA, but you (or your spouse, if married filing jointly) must have earned compensation to contribute. 

Age for withdrawals (traditional IRAs): Generally speaking, you must reach at least age 59 1/2 to withdraw money from a traditional IRA without penalty. If you need the money sooner, you'll need a qualifying reason or you'll face a 10% penalty on top of any taxes due. Once you reach age 70 1/2 you must start making required minimum distributions or you'll face a 50% penalty on the amount you should have withdrawn but didn't.

Age for withdrawals (Roth IRAs): You are never required by your age to take money out of your Roth IRA. You may always take your direct Roth IRA contributions out without tax or penalty, no matter what your age. If your Roth IRA is at least five years old and you have reached at least age 59 1/2, you may withdraw any amount money from your Roth IRA completely free of any Federal income tax.

You may also withdraw any "rollover" contributions from your Roth IRA free of additional tax, but the rollover has to age at least five years or you'll face the 10% penalty. Similar to a traditional IRA, with a qualifying reason, the 10% penalty can be waived on an early distribution from a Roth IRA, but any early distribution of earnings will be subject to income tax.

Income: You (and/or your spouse, if married filing jointly), must have earned compensation of at least the amount you plan to contribute to you IRA. There is no maximum compensation limit for making traditional IRA contributions, but there are income limits for Roth IRA contributions. The table below from the Internal Revenue Service shows those Roth IRA limits for 2014 contributions:


Table courtesy of the Internal Revenue Service, as of Dec. 19, 2013 .

People whose income is too high to qualify to make direct Roth IRA contributions may still be able to get money into a Roth IRA through what is typically called a "back-door Roth."

Deductions: Contributions going into a Roth IRA are not deductible. If neither you nor your spouse have a qualified retirement plan available to you through your work, you may deduct your traditional IRA contribution, no matter how high your income. If either you or your spouse have a qualified retirement plan available to you at work, the deduction gets a bit trickier. Once again, the IRS comes through with a pair of useful tables:

If you are covered by a qualified retirement plan at work:
Table courtesy of the Internal Revenue Service, as of Dec. 19, 2013 .

If you are not covered by a qualified retirement plan at work:

Table courtesy of the Internal Revenue Service, as of Dec. 19, 2013 .

It's complicated, but worth it
While the IRA limits for 2014 are a bit complicated, it's worth the effort to navigate them. The long-term benefits you can get from decades of tax-advantaged compounding can easily outweigh that complexity. When your golden years wind up truly golden because of your foresight to contribute, your future self will certainly thank you for it.

Another key weapon in your retirement arsenal
In addition to your IRA, Social Security plays a key role in your financial security. While it most likely won't be enough to guarantee you a comfortable retirement on its own, Social Security will supplement your own investing in your golden years.

In our brand-new free report, "Make Social Security Work Harder For You," our retirement experts give their insight on making the key decisions that will help ensure you can effectively leverage Social Security to assure a more comfortable retirement for you and your family. Click here to get your copy today.


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Chuck Saletta
TMFBigFrog

Chuck Saletta has been a regular Fool contributor since 2004. His investing style has been inspired by Benjamin Graham's Value Investing strategy. Chuck also can be found on the "Inside Value" discussion boards as a Home Fool.

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