Familiarizing yourself with the IRA limits for 2014 and making retirement planning a priority puts you one step closer to ensuring financial security. Here's what you need to know about the IRA limits for 2014.
New year, few changes
Individuals may contribute up to $5,500 to their IRA in 2014, which is the same amount as in 2013. The catch-up contribution limit for employees age 50-plus is also unchanged at $1,000. Contribution limits are the same for both Traditional and Roth IRAs, yet the tax treatment is different. Although Traditional IRAs may give you a tax deduction today, you must settle up with Uncle Sam when you withdraw the money. By comparison, Roth account contributions are made with after-tax dollars. Yet withdrawals, including the earnings, are tax-free in retirement.
But knowing the IRA limits for 2014 is just part of the picture. You also need to familiarize yourself with the ins and outs of income limitations and tax deductibility. Things get tricky if, say, you're a high-wage earner or either you or your spouse has a qualified retirement plan available through work. My Foolish colleague Chuck Saletta highlighted the nitty-gritty details further in a recent article.
For instance, the tax deduction for traditional IRA contributions is phased out for single individuals with a workplace retirement plan who have modified adjusted gross incomes between $60,000 and $70,000. That's $1,000 more than in 2013. The income phase-out range for married couples will also climb by $1,000 to between $96,000 and $116,000. For investors who don't have a retirement plan through work but are married to someone who does, the deduction is phased out if the couple's income is between $181,000 and $191,000. That's $3,000 more than in 2013.
As you can see, understanding the IRA limits for 2014 is only part of the equation.
Fund your IRA fully and early
Only 47% of IRA owners contributed the maximum amount in 2011, according to an Employee Benefit Research Institute analysis of more than 20 million accounts. But even if you diligently max out your IRA, you still have work to do.
The timing of your contribution is critically important. Waiting until the tax deadline to fund your IRA can cost you up to 15 months of potential tax-deferred growth on your contribution. Although that might not seem like a significant amount of time, it can considerably impact your retirement savings over the long term.
Knowing the IRA limits for 2014 is just the first step
Even though the IRA limits for 2014 are unchanged from last year, don't get lazy. Familiarize yourself with the income limitations and tax deductibility, revisit the dollar amount you fund, and strongly consider the timing of your contribution.