How much can I contribute to an IRA?

From FinancialPlanning

General Rules

The IRA contribution limit is the maximum that you can add to all of your IRA accounts, combined, for a given tax year. This rule applies across IRAs of all types. If you have two Traditional IRAs, one at a bank and one at a brokerage firm, and the contribution limit is $4,000, you can't add $4,000 to each. The limit is $4,000 total, distributed between the two of them however you wish.

If you have both a Roth IRA and a Traditional IRA, you can spread a total of $4,000 between those two accounts (assuming you meet the rules for contributing to each). You can't add $4,000 to both of them, and anything over $4,000 in combined contributions will be considered an "excess contribution" which results in penalties.

Exception: a SEP-IRA is considered a retirement plan so you may be able to contribute to both a SEP-IRA and an IRA in the same year. See the section on SEP-IRAs for details.

Contribution Limits 2006-2008

The contribution limits for IRAs for the next few years are:

2006 $4,000
2007 $4,000
2008 $5,000

After 2008 these limits will be indexed for inflation, going up in $500 increments.

In each year the limit is really "the lesser of your earned income or" these amounts. If you only earn $2,000 during 2006, your contribution limit is $2,000.

Catch-up Contributions

If you are at least age 50 by December 31 of a given tax year, you're also allowed to contribute an additional "catch-up contribution" of $1,000 each year.

Spousal IRAs

If you are married, you can combine incomes to figure your contribution limits. As an example, as long as your combined income for 2006 is at least $8,000, you can both contribute up to $4,000 to your IRAs (up to $4,000 into one IRA for you, and up to $4,000 into a separate IRA for your spouse). This is true even if one of the spouses does not have any income.

Income Limits for Roth IRAs

If your income is above a certain limit, you'll be able to contribute less to a Roth IRA than the limits listed above. If you're single, this "phase-out" starts at $95,000 in income, and at $110,000 you can't contribute anything to a Roth IRA. If you're married and file a joint tax return, the phase-out starts at $150,000, and you can't contribute anything once income is above $160,000. If you aren't able to make a Roth IRA contribution, you could instead contribute to a Traditional IRA.

Deductibility

A separate question is "how much of my contribution is deductible?" "Deductible" means that you are able to take a deduction for all or part of the contribution on your income tax return, reducing the taxes you owe in that year.

Roth IRA contributions are never deductible. Traditional IRA contributions may or may not be deductible, depending on your income and whether you have a retirement plan at work (such as a 401(k) plan). IRS Publication 590 includes an entire section describing all the scenarios and limits on deductions for each.

Additional Information

The above just skims the surface; see IRS Publication 590, "Individual Retirement Arrangements" for all the details about IRAs.