Your Guide To IRA Rules & Limits

IRA Rules & Limits

The IRS has established rules and limits for all Individual Retirement Accounts (IRA’s). Some of these Individual Retirement Account rules are different for a Roth and a Traditional, but the maximum contribution limits are the same for both types of Individual Retirement Account’s.

With all of the rules that apply to Individual Retirement Account’s you need a guide just to keep it all straight.   We have highlighted for you the similarities and differences between Roth Individual Retirement Account investments and Traditional Individual Retirement Account investments.

Your Guide To Individual Retirement Account’s

Contribution Limits:

  • For 2009, the maximum contribution limit to a Roth IRA or a Traditional IRA investment was $5,000.
  • For 2010, the maximum contribution limit for both types of IRA is $5,000.
  • Your contribution cannot exceed your taxable income for the year.

Catch-up Contribution Limits:

  • If you turn age 50 or older in the calendar year you make your contribution you are allowed an extra contribution in addition to your standard contribution; this is the catch-up contribution.
  • For 2009, the catch-up contribution was $1,000
  • For 2010, the catch-up contribution is $1,000

IRA Rules Contribution Rules:

  • Roth IRA contributions are not tax-deductible.
  • Roth IRA contributions are made with after tax monies, so they are not taxed at withdrawal.
  • Traditional IRA contributions are often tax-deductible, depending on your income.
  • Traditional IRA contributions are tax deferred until withdrawal.

Eligibility Rules:

  • Your contributions to a Roth IRA and a Traditional IRA must come from earned income.
  • This earned income can include salaries, wages, commissions or tips.
  • The money for your contributions cannot be from an inheritance, that is considered unearned income.

Income Limits:

  • To contribute to a Roth IRA investment your adjusted gross income must be under $120,000 if your single or under $176,000 if you are married.
  • There is no income limit to contribute to a Traditional IRA investment.

Withdrawal Rules:

The rules for withdrawing from an Roth IRA and a Traditional IRA are different.

Roth IRA  withdrawals

  • Tax-free if the account is held for 5 years and you are at least age 59 1/2.
  • A withdrawal before you turn age 59 1/2 is considered an early withdrawal and will be subject to a 10% early withdrawal penalty
  • If you are under age 59 1/2 AND have held the account for 5 years, but meet certain qualifying criteria. you can make a penalty free withdrawal.

Qualifying Criteria for Penalty Free Withdrawal include:

  • Medical Expenses exceeding 7.5% of your adjusted gross income.
  • First Time Home Buyer.
  • Disability – permanently or totally.
  • College Expenses – for yourself, your spouse or your children.
  • Health Insurance Premiums – during your unemployment, you paid for health insurance premiums.

You must hold the account for 5 years in order to qualify under one of the above criteria.

Traditional IRA withdrawals

  • All withdrawals before age 59 1/2 are considered by the IRS to be an early withdrawal.
  • Early withdrawals from a traditional IRA are taxable.
  • Withdrawals before age 59 1/2 incur a 10% tax penalty.

Use this Individual Retirement Account guide to help you answer all of your concerns and questions about Roth IRA’s, the IRA rules and IRA limits.


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