What Is the Maximum IRA Contribution?

By Frank Dansk

There is a maximum IRA contribution and it is quite low when compared to the maximum 401k contribution that a lot of people are used to. While the maximum of 401k contribution doesn't really matter to most workers because they never make enough money to contribute the maximum amount, when contributing to an IRA, the maximum IRA contribution is usually low enough for them to afford to whole amount and worry about over contributing.

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.

If you file for an extension to file your tax return, it does not mean you have an extension to contribute to your IRA too. The maximum IRA contribution must not be exceeded on April 15 of the tax filing date or the IRS will penalize you whether you have filed your tax return or now.

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.

If you are 50 or older, your maximum IRA contribution is higher. You can contribute up to $5,000 if you are 50 or older. The higher maximum IRA contribution for people 50 or above is the result of what is called a catch up 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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