If you’ve contemplated the contribution limits for the traditional IRA and/or Roth IRA, you’ll be happy to know that they’re decently substantial. While your limit may not reach the level of the 401k or other investment options, it helps to give you a sizable nest egg if you start early – and take advantage of its full limit.
What is the Limit?
Whether you’re looking to invest in the traditional IRA or the Roth IRA, the contribution limits are the same: $5,000. The annual limit is determined by the Federal government and can change from year-to-year; however, it doesn’t drop.
The current guideline for limit adjustment is that it raises based on inflation by $500 each year. If there is no inflation to consider in a particular year then it doesn’t raise. Such is the case for the years 2008 and 2009.
How to Manage IRA and Roth IRA Contribution Limits
What’s interesting about making contributions to the traditional IRA or Roth IRA is that both allow you to make deposits throughout the year. So for instance, if you want to make monthly deposits of $416.17 per month, four deposits of $1,250, or one payment of $5,000, you can do it any of these ways. However, it’s fairly common to take the monthly option – or even bi-weekly – because funds are often deducted from a paycheck.
Also, it’s good to know that you’re not required to reach the full limit available to you. However, there are two reasons that it’s good to shoot for the stars when working with contribution limits. One is that you have greater tax advantages the more you deposit. Also, you don’t get to “make up” the difference the following year. For instance, if you contributed $2,500 in 2008, you don’t get to contribute $7,500 in 2009. If you don’t move on it, you lose it. So if at all possible, it’s good to maximize your contributions each year.
Now that you know the contribution limits for both the traditional IRA and Roth IRA, are you going to take advantage of them? In these difficult economic times, any effort to save your money is greatly beneficial. The more you save, the less you’ll have to worry when you retire.