How Much is the Maximum IRA Contribution?

By Harry Osmund

The maximum IRA contribution is the maximum amount that the IRS allowed people to contribute to their individual retirement account. When compared to the maximum 401k contribution amount, the maximum IRA contribution is much lower. You cannot deduct the IRA contribution from your paycheck like you can with 401k, you actually have to write a check and send to your IRA trustee marked IRA contribution.

People can make IRA contributions until the tax filing date which is April 15th. If you have not contributed to the maximum IRA contribution amount allowed you may want to do it before April 15th. After that date, any contributions will be considered as contributions for next year. If you, however, have contributed too much, exceeding the maximum IRA contribution, then you would want to remove some of the money in your IRA to stay under the maximum IRA contribution limit.

Some people think that filing an extension means they automatically get an extension to contribute to their IRA. This is not the case. The cut off date for an IRA contribution is the tax filing date, not extension allowed. The IRS will penalize and tax the amount over the maximum IRA contribution.

If you contribute to an IRA, whether it is a traditional IRA or a Roth IRA, from January to April 15th, the contribution can be counted as the previous calendar year's contribution if you have not exceeded the maximum IRA contribution limit. However, you must instruct your IRA trustee to report to the IRS as such or the trustee can report it as this year's contribution instead.

The key question about maximum IRA contribution is how much the maximum IRA contribution is. In 2007, for example, the maximum IRA contribution is $4,000 for people younger than 50. The maximum IRA contribution changes from year to year, although some years it does not change. If you are not sure how much you can contribute, check with the IRS to see what this year's maximum IRA contribution is.

For people who are 50 or older, the IRS allows the higher maximum IRA contribution amount of $5,000 in 2007. This maximum IRA contribution changes most years too. The higher maximum IRA contribution is the result of what the IRS refers to as a 'catch up' contribution on top of the regular maximum IRA contribution.

Don't be confused by the number of individual retirement account you have. The maximum IRA contribution limit stays the same no matter how many IRA you have. If you have multiple IRA then the combined contributions to all of your IRA must be below the maximum IRA contribution. To avoid taxes and penalties, make sure you know the maximum IRA contribution limit before contributing.

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