A short while ago the IRS released their 2013 IRA contribution limits, income based phaseouts for deductions as well as guidance on what we can expect to see changing this year with Roth and Traditional IRAs.
If you have an IRA it's a good idea to keep tabs on the changes from year to year so that you can take advantage of any increases in contribution limits, or to make sure you're not making too much to contribute. Get a big raise this year? You might not be eligible to contribute to your Roth IRA this year, so make sure to check!
For the 2013 tax year the amount that you can contribute to a traditional or Roth IRA has finally gone up after a couple of years of remaining the same.
Don't have a Roth IRA yet? Check out this post talking about the best places to open a Roth IRA.
Contribution Limits For Roth & Traditional IRA In 2013
The contribution limit for both Roth and Traditional IRAs went up this year by $500. So if you're under the age of 50 that means you can now contribute $5,500 to your IRA accounts. Older than 50? You can make catch up contributions of up to $1,000 – which means your limit is actually $6,500.
The limit for the Roth and traditional IRA is a shared limit, so keep in mind if you contribute to one, the limit for the other is reduced. The $5,500 is a single combined limit if you want to max out your contributions.
For example, if you contribute $4,000 to your Roth IRA, you could only contribute $1,500 to your traditional IRA (bump that up by $1,000 if you're over 50).
Here’s a table showing the 2013 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 2013
Both Roth and traditional IRAs have income phaseouts. What that means is once you reach a certain level of income the amount of you can contribute goes down, and gets completely phased out at some point, or the tax deduction for said contribution starts to go away.
For Roth IRAs single taxpayers with an annual Modified Adjusted Gross Income (MAGI) over $112,000 begin to see their allowable deduction drop until at $127,000 it goes away completely. The limits for Married Filing Jointly investors are $178,000-$188,000.
For Traditional IRAs single taxpayers with an annual Modified Adjusted Gross Income (MAGI) over $59,000 begin to see their allowed deduction drop until at $69,000 it goes away completely. The limits for Married Filing Jointly investors are $95,000-$115,000.
|Roth IRA Income Limits For Contributions||Contributions are reduced if income is above this amount||Contributions are not available if income exceeds this amount|
|Single/Married Filing Separate IF you didn't live together during the year.||$122,000||$137,000|
|Married Filing Jointly or qualifying widow or widower.||$193,000||$203,000|
|Married filing separately IF you lived with your spouse at any point during the year.||$0||$10,000|
Contribute For Previous Year Right Up Until Tax Day
If you have a Traditional IRA or Roth IRA, one thing a lot of people don't realize is that the time to contribute to your account doesn't end when the clock strikes midnight on December 31st. In fact, if you haven't contributed the allowed contribution amount by December 31st, you have all the way until tax day to contribute to your account for the previous year.
In fact, you can still open a Roth IRA or a traditional IRA and contribute the fully allowed amount up until tax day. Tax day will fall on Monday, April 15th, 2013 this year. So there is still plenty of time!
If you do make a contribution in 2013 before tax day, make sure you specify which tax year the contribution is being made for.
Make Sure To Keep Watch On Your Limits
When you're contributing to a Roth or Traditional IRA you'll want to keep an eye on the limits and phaseouts. If your income is reaching phaseout thresholds, you may want to consider reducing your taxable income by contributing to an account like a 401k, or reducing your taxable income by making charitable contributions, etc so that you can continue to be eligible for the account type.
Also keep an eye out so that you can make sure to increase your contributions in years, like this one, where the contribution limits increase.
Are you increasing your contributions this coming year?