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Traditional IRAs allow your investments to grow tax-free until they are withdrawn.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

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.