How much can you Contribute to an Ira in 2011

How much can you contribute to an IRA in 2011

An Individual Retirement Account (IRA) is a tax-friendly retirement savings plan. In a standard IRA, contributions are tax-deductible, but tax must be paid on all withdrawals. In a Roth IRA, designated Roth contributions are included in gross income. However, Roth IRA earnings are non-taxable, providing the conditions of the Roth account are met.

Contribution limits

The contribution levels for both standard and Roth IRAs are the same. In both cases, the maximum amount which may be contributed to an IRA or combination of IRAs per year is the lower of earned income or contribution limit. All contributions except rollovers or transfers must be made with cash or cash equivalents.

For the 2011 tax year, the IRA contribution limit is $5,000. If you are 50 years of age or older at the end of the tax year, you can add an extra $1,000, for a total of $6,000. If you do not use the full amount of your IRA contribution limit in 2011, the difference does not carry over into 2012. Funds in an IRA must be kept in the plan for a minimum of 5 consecutive tax years.

These contribution limits are over and above the contribution limits for a 401k. You may hold both an IRA and a 401k at the same time, and contribute the maximum amount to each. However, your IRA contribution limit is for all your IRAs together, even if they are of different kinds. You cannot contribute the maximum amount to each IRA separately.

Phaseout limits

For standard IRAs, if you are covered by a retirement plan at work and you are single, the 2011 phaseout applies between $56,000 and $66,000. If you are married, filing jointly, and are covered by a work retirement plan, the phaseout applies between $90,000 and $109,000. If you are not covered by a retirement plan at work and you are married, filing jointly, the phaseout applies between $169,000 and $179,000. The phaseout does not apply if you are single and not covered by a retirement plan at work.

For Roth IRAs, if you are a single filer, the 2011 phaseout applies between $107,000 and $122,000. If you are married and filing jointly, the phaseout applies between $169,000 and $179,000. Phaseout limits for Roth IRAs do not depend on whether you are also covered by a work retirement plan.

Other considerations

All contributions to your IRA do not have to be added into the account in one lump sum. Instead, you might choose to divide your contribution into smaller payments over the course of the year. Small monthly payments of $416.66 are much easier to handle than a single lump-sum payment of $5,000.

You can also make an IRA contribution on behalf of your spouse. A surviving spouse who also holds an IRA can combine the two IRAs into a single plan without any tax penalty. Thus, in estate planning, it is almost always a good idea to keep money in an IRA.