IRA Contributions

With 2010 coming to a close, many people are understandably concerned with making sure they’ve made the optimal financial decisions. It’s not always easy, given how the rules change from year to year! With that in mind, let’s take a look at the 2010 IRA Contribution and Deduction Limits.

If you are under 50 at the end of the year, you can contribute up to $5,000 or your total taxable income, whichever is less, to any combination of IRAs (both traditional and Roth IRAs). If you’re over 50, you can contribute the lessor of $6,000 or your taxable income (the extra $1,000 is a “make-up” allowance as you’re theoretically getting close to retirement).

When you contribute to a traditional IRA, you generally get to take a tax deduction. If you file as single (or head of household), you can take the full deduction if you make $56,000 or less. If you make over $56,000 but less than $66,000, you get a partial deduction; if you make more than $66,0000, there is no deduction. If you are married filing jointly, you get the full deduction if your income is up to $89k and a partial deduction if your income is under $109k. Married filing separately? You’re probably screwed; unless you didn’t live with your spouse at any time during the year, you only get a partial deduction and only if your adjusted gross income was less than $10,000.

However, if your employer does not offer a retirement plan, then you can take the full reduction regardless of your adjusted gross income (although there is a $167k limit if your spouse is covered by a plan; this assumes you’re filing jointly, as if you file separately it goes back to a $10k limit for a partial deduction).

Roth IRAs don’t come with tax deductions, of course, but your AGI can still effect how much you can contribute; you’ll need to make less than $105k if filing singly and less than $167k if filing jointly to be able to make the full contribution.

Related articles

• Year-end retirement moves, Dec. 2010 (dontmesswithtaxes.typepad.com)