What Are The Traditional IRA Contribution Limits?

Any retirement plan that can be considered has certain rules and regulations to be followed that are dictated by the IRS. As many of the popular retirement plans have tax advantages, there has to be limits or else the government itself will lose out on a great deal of income from tax. The main restrictions on, for example, a traditional IRA are the contribution limits. Although a traditional IRA has no limits regarding the level of income an investor must have, the Federal Government does impose certain annual contribution limits. This basically says that an investor can put as much money into their retirement fund as they wish as long as it does not surpass the annual traditional IRA contribution limits.

The contributions can be put into a traditional IRA plan as frequently as an investor wishes as long as the annual investment totals do not go over the limits in place. As there are tax advantages to be gained when investing in a traditional IRA, it is a good idea for any investor to contribute the maximum amounts allowed.

In the year 2007, the traditional IRA contribution limits consisted of $4,000 plus an additional $1,000 for those over the age of 50. This extra thousand is a catch up contribution. In the year 2008, the traditional IRA contribution limits amount to $5,000 plus an extra $1,000 catch up for the over 50's. Although an investor can only contribute these amounts for themselves, if they have a spouse who does not work, the same amounts can be contributed to that spouse's individual traditional IRA, which is advisable.

From the year 2008, due to inflation, it is expected that the contribution limits will rise by $500 at a time. The maximum amounts cannot be carried over to the following year. For example, if an investor contributes an annual sum of $3,000 to their retirement fund in a given year, the following year will still have a limit of $4,000 in place. The fact that an investor did not take full advantage of the amounts allowed is of no consequence. It is up to the investor to reap the benefits and contribute the maximum that is allowed. Therefore the maximum contribution should always be made.

Due to the fact that there are restrictions like this on a traditional IRA plan, many people are now turning to the 401k plan which has higher limits placed on the contribution amounts. Although the traditional IRA is attractive in its own way due to the tax advantages and lack of income limits, it is still a personal plan and many prefer to use company sponsored retirement plans at present so that they can take advantage of having their contributions matched by their employer.



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