While self-directed IRAs afford you an unbelievable amount of freedom and choices toward gaining control of your retirement, individual retirement accounts do have something of a limitation, and that’s the fact that your annual contributions are capped. The 2013 contribution limits for your IRA are as follows:
2013 maximum IRA contributions. For 2013 IRA contributions limits (both traditional and Roth accounts) will increase by $500. This means that the maximum IRA contribution per individual in 2013 is $5,500. The so-called ‘catch up’ contribution that also available for individuals aged 50 and older will remain unchanged at $1,000 for 2013.
Deductibility of 2013 IRA contributions. While anyone with earned income is eligible to contribute to a traditional IRA, 2013 contributions may also be tax-deductible depending on the contributor’s adjusted gross income, the type of their self-directed IRA (Roth vs. Traditional), and whether they’re covered by a retirement plan at work.
For Roth IRAs, deductibility is an easy issue. contributions are never deductible. For a traditional self-directed IRA, deductibility will be determined by whether you are covered by a retirement plan at work and your adjusted gross income.
Individuals not covered by an employer sponsored retirement plan can deduct the full amount of their contribution, regardless of their AGI. Such an individual who files a joint tax return, and whose spouse is covered by a work retirement plan can deduct the full value of his or her contribution if the couple’s joint AGI is less than $178,000. For a joint AGI between $178,000 and $188,000 a partial deduction is available.
For individuals who are covered by a retirement plan at work, the AGI must be less than $59,000 in order to take the full deduction, and between $59,000 and $69,000 in AGI a partial deduction will be available. This represents an increase of $1,000 from the 2012 AGI levels. For an individual covered by a work plan and who files a joint return, a full tax deduction will be available if their joint AGI is less than $95,000, and a partial deduction is available for income levels between $95,000 and $115,000.
Eligibility for Roth IRA Contributions. As mentioned above, contributions to a Roth IRA are never deductible in the year of contribution. Furthermore, not everyone is eligible to contribute to a Roth account. In terms of 2013 contribution limits. an individual with an adjusted gross income of less than $112,000 can contribute the full $5,500 amount. Individuals with an AGI between $112,000 and $127,000 can contribute a lesser amount, and persons with an AGI over $127,000 cannot contribute at all.
Because a failure to contribute the maximum amount in a given year can never be made up in future years, it’s important to always contribute the maximum amount to your account each and every year. Whether that contribution should be to a traditional self-directed IRA or a Roth account will depend on your individual situation.
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