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How Much Money
Can I Put into My IRA or
Employer-Sponsored Retirement Plan?
All types of IRAs and
employer-sponsored retirement plans are
subject to annual contribution limits
set by the federal government. The
limits are generally adjusted
periodically to compensate for inflation
and the increase in the cost of living.
IRAs
For the 2007 tax year,
you can contribute up to $4,000 to all
IRAs combined (the annual limit
increases to $5,000 in 2008 and is
adjusted for inflation in later years).
For instance, if you have a traditional
IRA as well as a Roth IRA, you can only
contribute a total of the annual limit
in one year, not the annual limit to
each.
If you are age 50 or
older, you can also make an annual
$1,000 “catch-up” contribution.
Employer-Sponsored Retirement Plans
Employer-sponsored
retirement plans, such as 401(k)s and
403(b)s, have a 2007 contribution limit
of $15,500; individuals aged 50 and
older can contribute an extra $5,000 as
a catch-up contribution.
If you are currently
contributing to an IRA or an
employer-sponsored retirement plan, it
may be wise to check the contribution
limit each year in order to put aside as
much as possible.
Distributions from
traditional IRAs and most
employer-sponsored retirement plans are
taxed as ordinary income and may be
subject to an additional 10% federal
income tax penalty if taken prior to
reaching age 59½. If you participate in
both a traditional IRA and an
employer-sponsored plan, your IRA
contributions may or may not be tax
deductible, depending on your adjusted
gross income.
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