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Question: What are the contribution limits for an IRA?
Answer: The contribution limits for an Individual Retirement Account (IRA) depend on the type of IRA you have. As of 2021, the annual contribution limit for a Traditional IRA and a Roth IRA is $6,000 for individuals under the age of 50. For individuals aged 50 and above, there is an additional catch-up contribution allowed, raising the limit to $7,000. These limits are subject to change based on IRS regulations and may be adjusted in the future.
Question: Are there any income restrictions for IRA contributions?
Answer: While there are no income restrictions for contributing to a Traditional IRA, there are income limits for contributing to a Roth IRA. As of 2021, for single filers, the ability to contribute to a Roth IRA starts to phase out at a modified adjusted gross income (MAGI) of $125,000 and is completely phased out at $140,000. For married couples filing jointly, the phase-out range is a MAGI of $198,000 to $208,000. It’s important to consult with a tax professional or financial advisor to understand how these income limits may affect your specific situation.
Question: What happens if I contribute more than the annual limit?
Answer: If you contribute more than the annual limit to your IRA, you may be subject to an excess contribution penalty. The penalty is 6% of the excess amount for each year it remains in the account. To avoid this penalty, it is important to keep track of your contributions and ensure they do not exceed the allowable limit. If you realize you have contributed too much, you can withdraw the excess amount before the tax filing deadline for the year and avoid the penalty.
Question: Can I contribute to both a Traditional IRA and a Roth IRA in the same year?
Answer: Yes, it is possible to contribute to both a Traditional IRA and a Roth IRA in the same year. However, the combined contributions to both accounts cannot exceed the annual limit set by the IRS. For example, if you are under the age of 50, the maximum total contribution to both accounts in 2021 is $6,000. It’s important to keep track of your contributions to ensure they do not exceed the allowable limit.
