Individual Retirement Accounts (“IRAs”) remain the most popular investment vehicle for many individuals and married couples. 401(k)s are certainly popular, but they’re usually much less flexible than IRAs, and many people don’t like going through the hassle of moving or rolling over their accounts when they change employers.
IRAs are generally subject to lower contribution limits than 401(k)s and other investment vehicles. Furthermore, in order to receive the tax advantages of a traditional IRA, your income (or your joint income if you file a joint tax return) must be below a certain level.
Here is some information and advice about IRA contribution limits for 2012:
Traditional IRA Contributions. For traditional IRAs, the 2012 contribution limits will be $5,000 for savers under the age of 50, and $6,000 for savers aged 50 and older. Whether or not your traditional IRA contributions will tax deductible (and to what extent they’ll be deductible) will depend on your filing status, whether you’re covered by a retirement plan at work (such as a 401(k)), and your Modified Adjusted Gross Income (“MAGI”).
Traditional IRA Deductibility – Single. If you’re filing a single return and are not covered by a retirement plan at work, then your contributions will be fully deductible. If you are covered by an employer retirement plan, then your contributions will be fully tax-deductible if your MAGI is less than $58,000 for singles (with partial deductions available up to a MAGI of $68,000).
Traditional IRA Deductibility – Joint. If you’re filing a joint return and neither you nor your spouse is covered, then the contribution is fully deductible. If you file jointly but your spouse is covered, then the contribution is fully deductible only if your joint MAGI is less than $173,000, and a partial deduction is available if your MAGI is greater than $173,000 but less than $183,000. If you’re filing jointly and you’re covered by a work retirement plan then you’ll get a full deduction with a MAGI up to $92,000, and a partial deduction between $92,000 and $112,000.
Roth IRA. For those eligible to contribute to a Roth IRA, the 2012 contribution limits are the same as with traditional IRAs; $5,000 savers under the age of 50, and $6,000 for savers aged 50 and older. But while contributions to Roth IRAs are not deductible, your MAGI is still important because it determines whether you’re permitted to contribute to a Roth IRA at all. If you’re filing an individual return, you can contribute up to the maximum amount if your MAGI is less than $110,000. If your MAGI is between $110,000 and $125,000 you can make a reduced amount, and if your MAGI is over $125,000 you cannot contribute to a Roth IRA. For taxpayers filing jointly, the joint MAGI must be less than $173,000 to make a full contribution, or between $173,000 and $183,000 to make a partial contribution.
It’s important to understand the upcoming year’s rules and limits on IRA contributions and deductions so that you can make the right decisions for your current taxes, and which will help you reach your retirement goals.
Tags: 2012 ira contribution, contribution limits, retirement advice, Roth IRA