2011 Traditional And Roth IRA Contribution Limits And Phase Outs

At the end of October, the IRS released their 2011 IRA contribution limits.  If you have a Roth IRA (and you should), you’ll want to keep a close eye on the amount you’re allowed to contribute each year, because from time to time the amount does go up. When it does, you want to make sure to take advantage.

As we thought, the allowed contribution amounts have not changed this year, although the income phaseout limits have seen some small changes.

Contribution Limits For 2011 For Roth And Traditional IRAs

The contribution limit for the 2011 tax year is $5,000 for both Roth and Traditional IRAs, for people under the age of 50. If you’re older than 50 you can make a catch-up contribution to your account of $1000,  which brings your limit to $6,000.

You can contribute to a Roth IRA and a Traditional IRA in the same year, however, you need to remember that the $5000 limit is a combined total for both account types.  You can’t contribute $5000 to each type, just a total of $5000 (or $6000 if you’re over 50.)

So if you contribute $3000 to your Roth IRA, you can only contribute $2000 to your Traditional IRA

Here’s a table showing the 2011 Traditional and Roth IRA contribution limits, along with the limits in years past.

AGI Based Income Phaseouts For Traditional And Roth IRAs For 2011

Once you reach a certain income level, the amount you can contribute to a Roth IRA or Traditional IRA starts getting phased out, and at a certain point your ability to contribute is taken away altogether.

For Roth IRAs single taxpayers with an annual Modified Adjusted Gross Income (MAGI) over $107,000 begin to see their contribution limit drop until at $122,000 it goes away completely. The limits for Married Filing Jointly investors are $169,000-$179,000.

For Traditional IRAs single taxpayers with an annual Modified Adjusted Gross Income (MAGI) over $56,000 begin to see their contribution limit drop until at $66,000 it goes away completely. The limits for Married Filing Jointly investors are $90,000-$110,000.

Contributions To Your IRA Can Happen Until April 15th The Following Year

One important thing to remember with IRAs is that if you haven’t already contributed the full amount to your Traditional IRA or Roth IRA for the 2010 tax year, you can still open a Roth IRA and contribute to the accounts up until tax day, April 15th, 2011.

If you make a contribution in 2011 before tax day, specify which tax year the contribution is being made for.

Roth IRA And Traditional IRA: How Are They Different

The main difference between Traditional IRA and Roth IRA accounts is when you’ll pay taxes on the money. Traditional IRA accounts have money that is put in pre-tax.   Because no taxes have been taken out yet, your distributions will be taxed in retirement.

Roth IRA contributions are made with dollars that have already been taxed.  Because the money has already been taxed, it will grow tax free and not be taxed at withdrawal.  I like that.

For a complete look at where to open a Roth IRA before the year is out, check out this article: Where Is The Best Place To Open A Roth IRA?

Do you currently have a Traditional IRA or Roth IRA? Are you contributing to the limit? Which account type do you prefer? Tell us your thoughts in the comments.