As the 2009 income tax return filing deadline approaches, we want to make sure we have contributed the most we can to our Individual Retirement Accounts (IRAs). The 2009 contribution limit on IRAs and Roth IRAs is $5,000. Individuals age 50 and older can make an additional catch-up contribution of $1,000. Individuals older than 70½ cannot contribute to a traditional IRA but may still contribute to a Roth IRA. The contribution limit amount applies to both traditional IRAs and Roth IRAs on a combined basis. For example, if you contribute $3,000 to a traditional IRA, then the amount you can contribute to a Roth IRA is reduced by $3,000.
Your ability to contribute to an IRA or Roth IRA may be limited based on your income. Individuals cannot contribute more than their taxable compensation, so if an individual earned less than $5,000 during 2009, the amount of their taxable compensation is their contribution limit. Married couples get to consider their combined taxable compensation, so a married individual without taxable compensation may still contribute to an IRA if their spouse earned sufficient taxable compensation. Your ability to contribute to a Roth IRA also may be limited if your income is too high. To contribute to a Roth IRA for 2009, Adjusted Gross Income (AGI) must be less than $120,000 for single individuals or less than $176,000 for married individuals filing jointly.
Roth IRA contributions are not tax-deductible. Traditional IRA contributions are generally tax-deductible but the deductibility may be limited if you are covered by an employer retirement plan. If covered by a retirement plan at work, the deductibility of traditional IRA contributions begins to phase out for single individuals with AGI greater than $55,000 and married individuals with with AGI greater than $89,000. For married individuals not covered by a retirement plan at work but who have a spouse covered by a retirement plan at work, the deductibility of their traditional IRA contributions begins to phase out with AGI greater than $166,000.
IRAs and Roth IRAs are a great tool for retirement savings. Be sure to utilize this tool by completing your 2009 IRA contributions before the April 15 tax return filing deadline. Please note that all numbers and rules included in this article are applicable for the 2009 tax year and may not be applicable for previous or future years.
Sources: 2009 IRS Publication 590
