Traditional IRA Limits For 2009
If you're wondering what the Traditional IRA limits for 2009 and beyond are, you are not alone. These contribution limits are set by the government and are adjusted upward each year for inflation. These limits will be covered later in this page, but first a little IRA 101. Any person under age 70 1/2 who gets compensation (either salary or self-employment income) can make a contribution to an individual retirement account. For some, the contribution will be not be tax-deductible, but the earnings will grow tax-deferred. For others, the contributions will be tax-deductible AND the earnings will grow tax-deferred. The contributions will be tax-deductible if neither the taxpayer nor the taxpayers spouse is a participant in a company-sponsored retirement plan. If the taxpayer is an active participant in a company-sponsored retirement plan, then the contribution is deductible only if his or her adjusted gross income falls below a certain limit (designed to be for middle class income). If the individual is not an active participant, but his or her spouse is, then the contribution is deductible (for the nonparticipant) if the couple's income is less than a different higher income threshold. These limits and thresholds are very detailed and I will be adding them to this site at a later date. What are the benefits of a Traditional IRA? A traditional Individual Retirement Account is an account that will grow tax-deferred. At some point, when you take the money out, you will pay taxes on anything that you have not yet paid taxes on. This feature allows you to keep the money growing for potentially many years without having to take anything out for taxes. This means that your account will be much larger than had you been paying taxes along the way. The chart below shows a hypothetical $10,000 investment, returning a steady 6% in three different tax situations: tax-deferred, a 20% tax rate and a 40% tax rate. As you can see, the tax-deferred account grows much faster than the accounts that pay taxes each year.
Eventually you're going to have to pay taxes on the earnings and/or original contributions (depending on whether or not they were tax deductible). But the good news is, many people are in a lower tax bracket during their retirement years than they were in their working years. And you only pay taxes on the amount you withdraw from your retirement account, as you withdraw it. 2009 IRA Limits For 2009, you can invest $5,000 in a traditional IRA if you are age 49 & below. If you turn age 50 or older in 2009, you can invest $6,000. In 2010 these numbers will be adjusted upward again for inflation, but the exact amount has not yet been released as of yet. When Do I Have To Start Withdrawing My IRA? Starting at age 70 1/2 you will have to start taking money out of your Individual Retirement Account at a rate set by the government. These IRA limits are called a Minimum Required Distribution (MRD), or Required Minimum Distribution (RMD). This is calculated with a fairly simple formula used each year based on the size of your IRA. Fidelity Investments has a nice tool on their site that will calculate this for you, click here to use it. Again, you are only taxed on the amount withdrawn each year. For 2009, legislation was passed that IRA account owners are not required to take out the MRD, or RMD if they don't want to. This was passed so that people would not be forced to sell IRA holdings at such low levels in order to take distributions from their accounts. This was in my opinion a very good thing that the government had done (that's nice for a change!). Go From IRA Limits page back to Retirement page
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