Q: You recently wrote that the maximum that could be contributed to an IRA was $4,000. I thought the limit was $3,000, or $3,500 if you are 50 or older. When did the limit change?
A: On Jan. 1. The contribution limit for people under 50 rose to $4,000 this year; people 50 and older may make an additional “catch-up” contribution of $500, for a total of $4,500.
The $4,000 limit is scheduled to remain in effect until 2008, when it will rise to $5,000 annually. The catch-up amount, however, will rise to $1,000 next year. That means in 2006 and 2007, people 50 and older will be able to contribute a total of $5,000 a year.
When the regular limit rises again in 2008, people under 50 will be able to contribute a maximum of $5,000, while those 50 and older can contribute $6,000 annually.
You have until April 15, by the way, to make an IRA contribution for the previous tax year. But you can contribute only the previous year’s limit. So if you’re funding a 2004 IRA, you’re limited to $3,000 (or $3,500 if you’re 50 or older).
Simple it isn’t. But for those who can afford to contribute more, the rising limits offer a great opportunity to put away more tax-deferred dough.
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