A few months back the IRS released their 2012 IRA contribution limits and deduction phaseouts. If you have a traditional or Roth IRA, you should keep a close eye on the limits every year because every once in a while we'll see an increase in allowed contribution amounts or in the income phaseouts. When that happens, you'll want to increase your contribution amounts, or adjust your pre-tax giving so that you can fully take advantage of what the current rules are.
For the 2012 tax year the allowed contribution amounts haven't changed at all. The income phaseout limits have seen some small increases, however.
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2012 Contribution Limits For Roth & Traditional IRA
2012 saw the contribution limit both Roth and Traditional IRAs stay at $5,000 for people under the age of 50. If you are older than 50 this year you are able to make catch up contributions to your account of $1,000 – which means your limit is actually $6,000.
One thing to remember is that the Roth and Traditional IRA contribution limit is shared, so while you can contribute to both account types in one year, your $5,000 limit is a combined limit. So if you contribute $3,000 to your Roth IRA, you could only contribute $2,000 to your traditional IRA (bump that up by $1,000 if you're over 50).
Here’s a table showing the 2012 Traditional and Roth IRA contribution limits, along with the limits in years past.
|Year||Age 49 and Below||Age 50 and Above|
AGI Based Income Phaseouts For IRAs In 2012
Both Roth and traditional IRAs have income phaseouts. What that means is once you reach a certain level of income the amount of deductible contributions you can deduct gets reduced.
For Roth IRAs single taxpayers with an annual Modified Adjusted Gross Income (MAGI) over $110,000 begin to see their allowable deduction drop until at $125,000 it goes away completely. The limits for Married Filing Jointly investors are $173,000-$183,000.
For Traditional IRAs single taxpayers with an annual Modified Adjusted Gross Income (MAGI) over $58,000 begin to see their allowed deduction drop until at $68,000 it goes away completely. The limits for Married Filing Jointly investors are $92,000-$112,000.
|IRA Type||Single||Married Filing Jointly|
|Roth IRA - 2014||$114,000 – $129,000||$181,000 – $191,000|
|Traditional IRA - 2014||$60,000 – $70,000||$96,000 – $116,000|
Tax Day Of The Following Year Is Contribution Cutoff
One thing a lot of people don't realize is that if they haven’t already contributed the full amount to your Traditional IRA or Roth IRA for the 2011 tax year, they can still open a Roth IRA or a traditional IRA and contribute to the accounts up until tax day. This year tax day falls on April 17th, 2012 because of a government holiday.
If you do make a contribution in 2012 before tax day, make sure you specify which tax year the contribution is being made for.
Keep An Eye On Phaseout Limits
One reason why you'll want to keep an eye on the income based phaseout limits is that your ability to contribute to your accounts is reduced if you reach a certain income level. If you know you're close to reaching an income limit, try reducing your taxable income by contributing to an account like a 401k, reducing your taxable income and allowing yourself to contribute more to your IRA as well.