IRAs and employer-sponsored retirement plans are subject to annual contribution limits set by the federal government. The limits are periodically adjusted to compensate for inflation and increases in the cost of living.
For the 2014 tax year, you can contribute up to $5,500 to all IRAs combined (the limit will be adjusted annually for inflation). 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 a $1,000 annual â€œcatch-upâ€ contribution.
Employer-sponsored retirement plans such as 401(k)s and 403(b)s have a $17,500 contribution limit in 2014; individuals aged 50 and older can contribute an extra $5,500 each year 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.
The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Â© 2014 Emerald Connect, LLC.