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IRA Contribution Limits and Deadlines

To save for their retirement, you can invest funds in IRA accounts, in addition to the 401(k)s provided by your company or employer. The main advantage of opening an IRA account is that you can defer paying taxes on the earnings and gains from them. However, the single disadvantage of an IRA account is that stiff penalties are imposed if funds are withdrawn before the age of 59 ½ years.

There are several kinds of IRA s that include Traditional IRAs, Roth IRAs, SEP IRAs, and SIMPLE IRAs, and each one allows for different contributions. Given the wide ranging schemes available, there are certain limits that are imposed, which keep changing over time. Let’s take a look at the updated IRA contribution and income limits for the year 2018.

IRA Contribution Limits for 2018

Traditional IRAs – Given the inflation rates today, which have made older contribution limits inadequate to meet the requirement needs of the retired individual, policy makers have raised the contribution limits for the Traditional IRA from $2,000 several years ago to $5,500 in 2018.

An interesting rider in the Traditional IRA contribution limit is the catch-up limit, which can help individuals get their cash into their IRA faster. Individuals who reach the age of 50 or older before the end of the calendar year 2018 are entitled to an additional catch-up contribution of $1000, thus bringing the total contribution to $6,500.

Roth IRAs – The contribution limits that apply to the Traditional IRA are the same for the Roth IRAs in 2018: $5,500 for individuals under the age of 50, with a $1000 catch-up contribution for those who are 50 and over, bringing the total contribution to $6,500.

SIMPLE IRAs – In the SIMPLE IRA (Savings Incentive Match Plan for Employees IRA), the employer salary reduction contribution for 2018 is the same as it was in 2017: $12,500, and for employees who are 50 years old and above, the catch-up contribution of $3,000 brings the total contribution limit to $15,500.

An individual can contribute simultaneously to a traditional IRA as well as a Roth IRA, as long as the total contributing amount does not exceed $5,500 annually. Contribution to an individual’s IRA is nonetheless limited by their qualifying income, so let’s take a look at the income limits for 2018 too.

IRA Income Limits for 2018

As mentioned earlier, given the inflation index over the last several years, policy makers raised the modified adjusted gross income or MAGI contribution limits for Traditional IRAs. Explained simply, the MAGI or Modified Adjusted Gross Income is adjusted gross income (AGI) which is calculated without the IRA deduction, after including certain taxable Social Security benefits, the passive activity loss limitations to passive income, and certain modifications.

Traditional IRA Account holders are usually not limited by annual income. However, those account holders who are covered by a retirement plan at work will have their tax-deductible contribution to a Traditional IRA phased-out, if:

  • Their filing status is married filing jointly, and their AGI is more than $101,000 but less than $121,000.
  • Their filing status is single or head of household, and their AGI is more than $63,000 but less than $73,000.
  • The deductible phase-out starts at under $10,000 for those taxpayers who have a tax filing status of married but filing separate returns.

Similarly, Roth IRA account holders will have their tax-deductible contribution phased out if:

  • Their filing status is single and their income is more than $120,000 but less than $135,000
  • Their filing status is joint, and the combined income is more than $189,000 but less than $199,000

You should contribute the maximum funds you can spare to your IRAs annually, to build up a good nest egg of savings for your post-retirement needs. However, always monitor your nest egg and make adjustments when needed, as life may throw you a curve, and your future goals may change from time to time.

Remember, you can contribute to your IRA at any time throughout the year. Even after the year has ended, contributing towards the previous year’s IRA is still open, as long as it is made by the April 15th deadline. Also, remember that there are penalties if you pull out your money before the designated minimum retirement age of 59 ½ years. There are a few specific reasons under which you can withdraw your funds prematurely, but make sure you understand them thoroughly before you opt for that option!