How Much Can I Put in an IRA?

By Jeff Wysaski

  • Overview

    An IRA, or Individual Retirement Account, is one of the most popular ways to save for retirement. The main benefit of IRAs is that they are either tax-deferred or tax-free. However, no matter what type of IRA you have, the government places annual limits on the amount of money that can be added to your account on any given year.
  • Current Limits

    For the 2008 year, the annual limit for IRA contributions is $5,000 for individuals under the age of 50. For those over the age of 50, annual contributions are limited to $6,000. The government allows larger contributions for older individuals because they are closer to retirement and therefore are more likely to properly benefit from additional contributions.
  • Considerations

    Maximum contribution limits have steadily increased over the past several years. This is largely done as a means to adjust for inflation. From 1998 to 2001, maximum contributions allowed for all IRA holders was $2,000. This number increased in 2002 and again in 2005. From 2009 onward, contribution limits will be reassessed on an annual basis. If inflation warrants, maximum contributions will be readjusted in increments of $500.


  • Time Frame

    Maximum contribution limits do not dictate when or how often IRA contributions are made. Rather, they only pertain to how much money is deposited into the account throughout the entire year. As such, individuals may choose to make one lump sum payment of $5,000 or $6,000 (depending on age) or can make smaller installation payments throughout the year. Many people under the age of 50 choose to make monthly payment of $416.67, as this results in a total annual deposit of $5,000.
  • Expert Insight

    Most experts recommend that IRA holders contribute the maximum amount of money allowed by the government. This is because the tax benefits offered by an IRA are substantial. Furthermore, maximum limits operate on a use-it-or-lose-it structure. If you fail to contribute the maximum for the current year, the monetary difference cannot be rolled over to the next year.
  • Warning

    Failing to limit contributions to within the government mandated limit would result in payment penalties. Specifically, a 6 percent excise tax would be applied to the total amount of the overage.
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