IRA Update

With all the concern over the impending fiscal cliff, not much attention has been given to the new IRA contribution limits for 2013.  Due to the cost of living adjustment, the maximum total contribution for IRAs has increased from $5,000 to $5,500 for those younger than 50 years old in 2013.  The total catch-up contribution amount has also been increased from $6,000 to $6,500 for individuals older than age 50.

There is still no income limit on traditional IRA contributions. However, there are income limits for those who seek tax deductions for those contributions. If you are a married couple and you are both covered by employer plans, you can get a tax deduction for your traditional IRA contribution if your modified adjusted gross income is less than $95,000. The available tax deduction phases out at $115,000.  If your modified adjusted gross income is between $95,000 and $115,000, a partial tax deduction is available.

Roth IRA contributions, however, do face income limits. Single taxpayers with incomes less than $112,000 (and married taxpayers making below $178,000) can make a full contribution to their Roth IRAs.  However, if your earnings are above $127,000 (or $188,000 for married couples), a Roth IRA contribution is not available to you.  Individuals and couples whose modified adjusted income falls between these amounts could be eligible for partial Roth contributions.  As always there are no tax deductions available for Roth IRA contributions, as gains grow tax free.