How much can
I contribute to my IRA?
The contribution limit, for 2008, for IRAs is $5,000 per year.
What are catch-up retirement contributions for individual age 50
or older?
Since 2002, people who are age 50 or older can make additional
catch-up contributions to their retirement accounts. They can
contribute
an additional $1,000 per year beginning in 2006. The contribution
limits are also increased for other types of retirement plans.
How much can I contribute to my IRA every year?
Although the IRS prohibits you from investing more than $5,000 to
$6,000 a year in your IRA, depending on your age, it does not
require a minimum investment. As a result, you can invest as little
or as much as you like each year, as long as you don't invest more
than $5,000 to $6,000, depending on your age.
Is there a tax penalty if I contribute more than my contribution
cap to my IRA?
Yes. According to Wealth Enhancement & Preservation (The
Institute Inc., Denver), "If contributions (deductible or
nondeductible) in excess of the amount allowed are made to an IRA,
an excise tax equal to 6% of the excess contribution is imposed
until the excess is withdrawn or used to reduce later years’
contributions. This penalty can be avoided by withdrawing the excess
amount plus interest earned before the due date for filing your tax
return."
What is the deadline for making a contribution to an IRA?
You must make your contributions for the previous year by April 15,
even if you get an extension to file your return.
What tax form do I use to report nondeductible IRA contributions?
Use IRS Form 8606, Nondeductible IRAs (Contributions,
Distributions, and Basis). You must also file Form 8606 if you
received IRA distributions during the tax year and you have ever
made nondeductible contributions to any of your IRAs. Form 8606 must
be completed and filed with the IRS even if you don’t have to file a
tax return for the year in question.
What will happen if I make a nondeductible contribution to my IRA
and don't report it to the IRS?
You face a $50 penalty if you don't file Form 8606, and failing to
file could cause confusion between you and the IRS when you start
withdrawing money from the retirement account in future.
Can I mix deductible and nondeductible contributions in the same
IRA?
There’s no law that prevents you from mixing deductible and
nondeductible contributions in a single IRA, but when you eventually
begin making withdrawals, calculating how much of each withdrawal is
taxable and how much is not could be a nightmarish task.
Does it make sense to contribute to an IRA even if I can't deduct
the contribution?
Even if you can't deduct your contributions to an IRA, opening one
and funding it once a year might still make sense. The investments
you make in the account still will grow tax-free until you start
making withdrawals, usually after you reach age 59.5. However, you
might be better off taking your after-tax dollars and putting them
in a Roth IRA. All earnings are tax-free and neither your
nondeductible contributions nor any earnings on them are taxable
when you withdraw them. If you'd like to invest more than your
annual contribution limit for IRA accounts, you may want to consider
other tax-advantaged investments, such as annuity contracts or
tax-free municipal bonds or funds.
How can I put mutual funds into an IRA?
Contact your tax advisor or our
TFS financial
advisors
for more information.
Maximum
Contribution Amount Table
The maximum contribution amount is the aggregate
amount that you can contribute to any Roth and/or Traditional IRA in
a given year. For example, if you are younger than age 50 and you
contribute $500 to a Traditional IRA for this year, you can only
contribute $4,500 to a Roth IRA.
The Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of
2001 increased the maximum contribution amount, as shown in the
following chart:
|
Tax Year |
Maximum Contribution Amount |
|
2005 - 2007 |
$4,000 |
|
2008 |
$5,000 |
|
2009 and thereafter |
$5,000 + cost-of-living adjustment (COLA) |
|
CATCH-UP CONTRIBUTION Table
To make up for lost retirement savings, EGTRRA also
added ''catch-up" contribution ability for anyone who reaches age 50
or older by the end of the taxable year. The chart below shows
these additional amounts, which will increase the minimum
contribution amount for Roth and Traditional IRA owners who are age
50 or older.
|
Tax Year |
Catch-up Amount |
|
2002 - 2005 |
$500 |
|
2006 and thereafter |
$1,000 |
|
|
