If you’re looking to supplement your retirement nest egg, two of the best options is saving through a traditional IRA or Roth IRA. Which IRA is best for you may come down to the new 2012 IRA contribution and deduction limits released by the IRS.
Though you may not meet the requirements for both IRAs the important thing is to save as early and often as possible for your retirement. If you don’t have an existing IRA to contribute to, the best online brokers will make it easy to open an IRA.
All 2012 IRA contribution and deduction limits are based on your Modified Adjusted Gross Income or MAGI.
2012 Maximum Contribution Limits
The 2012 Roth IRA and traditional IRA contribution limits did not change from 2011. For both IRAs the maximum amount you’re allowed to contribute is $5,000. You may also be eligible for the additional “catch up contribution” if you’re 50 years old or older by the end of 2012. The “catch up contribution” allows for an additional $1,000 (for a total of $6,000).
The maximum contribution can be split between a Roth IRA and traditional IRA as long as the combined amount does not exceed $5,000 ($6,000 if you’re 50 years old or older).
2012 Roth IRA Contribution Limits
You must meet certain MAGI requirements to contribute to a Roth IRA. If you don’t meet the requirements for a Roth IRA you can still contribute to a traditional IRA.
| Contribution Limit |
Single or Head of Household |
Married, Filing Jointly | Married, Filing Separately |
| Full Contribution |
$0 – $110,000 | $0 – $173,000 | $0 |
| Partial Contribution |
$110,000 – $125,000 | $173,000 – $183,000 | $0 – $10,000 |
| No Contribution |
$125,000 or more | $183,000 or more | $10,000 or more |
If you file separately and did not live with your spouse for the entire 2012 year, your IRA contribution limit is determined using the Single or Head of Household column.
2012 Traditional IRA Deduction Limits
Anyone can make contributions to a traditional IRA. Based on your MAGI, you may be eligible to deduct some or all of those contributions for tax purposed. Even if you don’t qualify for a full or partial deduction, you can still make the maximum contribution allowed by the IRS.
| Deduction Limit |
Single or Head of Household |
Married, Filing Jointly | Married, Filing Separately |
| Full Deduction |
$0 – $58,000 | $0 – $92,000 | not allowed |
| Partial Deduction |
$58,000 – $68,000 | $92,000 – $112,000 | $0 – $10,000 |
| No Deduction |
$68,000 or more | $112,000 or more | $10,000 or more |
If you file separately and did not live with your spouse for the entire 2012 year, your IRA deduction limit is determined using the Single or Head of Household column.
No Employer-Sponsored Retirement Plan?
If you don’t have a retirement plan through work, your traditional IRA deduction limits are slightly different:
- Single or Head of Household – any MAGI amount can take the full deduction.
- Married, filing jointly or separately with spouse who is not covered by a plan at work – any MAGI amount can take the full deduction.
- Married filing jointly with a spouse who is covered by a plan at work – if your MAGI is up to $173,000, you can take the full deduction. If your MAGI is more than $173,000 but less than $183,000, you can take a partial deduction. If your MAGI is $183,000 or more, you can not take a deduction.
- Married filing separately with a spouse who is covered by a plan at work – If your MAGI is less than $10,000, you can take a partial deduction. If your MAGI is $10,000 or more, you can not take a deduction.
Still May Be Able To Contribute For 2011
If you haven’t maxed out your 2011 IRA contribution limits, there still might be time. You have until April 16, 2012 to contribute to a Roth or traditional IRA for 2011. Make sure to mark which year you want any contributions to be credited too.
If you haven’t started saving for retirement yet, set up an IRA today.
I find the income limits annoyingly low! There is no adjustment based on where you live in the country which means people the gov’t thinks are “rich” are really regular folks trying to build a nest egg like everybody else. Take NYC or San Fran for example, you live there and you being taxed like crazy and you have no IRA write offs just because you make a bit more money which is totally offset by the crazy expenses which are mainly driven by the insane tax rates in those areas…. Frustrating
That’s good information. Sadly, we’re not yet in a position to be nearing the maximum contribution levels, but are working towards that goal. If you do max out your contributions, there’s nothing to say that you can’t still set aside money that you can later use for your retirement. Even if you don’t get the tax benefits, that’s still better than not having it at all!
Well written! I wish we were in a position to take advantage of the max contributions but not right now. We currently have a 401k and a 403b that we are contributing to.
So if I’m over 50 and work for a company that offers a 401K I can contribute up to $22,500.
My brother who works for a company that doesn’t offer a 401K can put a max of $6000. in his IRA. I see niether logic or fairness here.
A person who is self employed or owns a small business gets a much better deal. The small business owner cann shelter nearly half his income if he can afford it. Hogwash!
I agree but a company isn’t obligated to provide a retirement plan. That said, it doesn’t mean your brother can’t still save money for retirement outside of an IRA. It’s not an ideal solution but its still better than not saving at all.