Although the various types of IRA accounts are intended to be simple for taxpayers to use, each year they receive some technical tweaks and adjustments that require careful attention.
For tax year 2011, among the changes are some increases in the maximum contribution limits for married taxpayers.
Let’s go over what these updated limits will be:
In 2011, the contribution limits on traditional IRAs and Roth IRAs, combined, are set at $5,000 for each married taxpayer under the age of 50. If you or your spouse are older, or if either of you become 50 during 2011, you’re each entitled to an additional “catch-up” contribution of $1,000, for a total current-year contribution of $12,000 to both types of accounts.
But this upper limit is subject to various income restrictions.
Married taxpayers with no retirement plan at work, who file jointly, may make a full contribution to their IRAs with Adjusted Gross Income all the way up to $169,000. Their maximum contribution declines proportionally with incomes up to $179,000, and if their income is any higher they are barred from making any IRA contribution at all in 2011.
However, if either you or your spouse is covered by a retirement plan at work, then your joint tax-deductible contribution to a traditional IRA is subject to being phased-out at higher levels of income. For example, if you have a retirement plan at work, and file jointly, you can make a full IRA contribution only when your Adjusted Gross Income is under $90,000. Your maximum contribution declines proportionally with AGIs up to $110,000, and at higher levels of income no IRA contributions are permitted in 2011.
Married taxpayers filing separately begin to bump up against maximum contribution limits at just $10,000 of AGI.
SEP-IRA and SIMPLE-IRA
If you have a SEP-IRA, your marital filing status does not influence your maximum contributions. Self-employed taxpayers may contribute up to 20% of their actual earned income. If instead you pay yourself a salary, your SEP-IRA contribution is limited to 25% of your earned amount. In either case, your maximum contribution to your SEP-IRA in 2011 will be $49,000.
If you have a SIMPLE-IRA, again your marital filing status does not influence your maximum contributions. Self-employed taxpayers may contribute up to $11,500 of their actual earned income ($14,500 if you are 50 or older during 2011). Because of the different rules that apply to these plans, your employer must also contribute between 1% and 3% of your total compensation to your SIMPLE-IRA.
Because it is generally beneficial to make your maximum allowable contribution each year, remember that Uncle Sam does not require you to make these contributions all at once. In fact, you can continue to make your 2011 contributions through April 15, 2012.
Note than in every case, your maximum IRA contribution may not exceed the amount listed on your tax return as your AGI. In other words, if you and your spouse earn only $4,500 in 2011, you may contribute only that $4,500 to your IRAs, even though the maximum limits for other taxpayers could be higher.
Note further than exceeding these maximum contributions requires that you file additional paperwork and withdraw the excess amount as soon as possible. If you do not withdraw your excess contributions on a timely basis, the IRS can impose significant penalties.