Why Contribution Limits are Important

Determining the current contribution limits is an important aspect of financial planning when looking at the Table of SIMPLE IRA Contribution Limits. You need to know how much you will be able to invest in your IRA retirement account each year. It is suggested to contribute the maximum amount allowed. By doing this, you will build a larger savings for when you reach the age of retirement. It is not required to make the maximum contribution, but this is the best way to reap all of the benefits associated with your IRA.

The maximum allowable contribution limits will change each year as the cost of living increases. Keep in mind that these limits are based on the contribution of a single person and the amount will depend on what type of IRA you have. For example, with a traditional IRA or a Roth IRA, the current contribution limit for 2009 is $5,000 if you are under the age of 50. If you are over 50, you are allowed an additional $1,000 for catch-up. With an SEP IRA, the limits are completely different. This type of account bases the limits on the amount of your income. The maximum allowable contribution cannot exceed 25% of your annual compensation, and cannot be more than $49,000 in 2009.

Importance of Income

Your annual income could have a severe impact on your IRA contribution limits. There are strict guidelines regarding how much money you can make each year and still be eligible to contribute to your account. These amounts also change each year, so it is important to be up to date on this information. If your income exceeds the allowable amount, you may enter into a phase-out period. During this time, the amount you are allowed to contribute to your IRA retirement account will decrease. If your income is much higher than the allowed amount, it is possible that you will not be allowed to contribute to the IRA at all. The income guidelines will vary depending on what type of IRA account you have.

Understanding SIMPLE IRAs

A SIMPLE IRA, which stands for Savings Incentive Match Plan for Employees, is a retirement plan available through your employer. This plan must be set up by your employer. It is similar to a 401(k), but this type of IRA has simpler rules than other company-offered retirement plans. Like the 401(k), the SIMPLE IRA is funded with pretax money. The contribution limits for a SIMPLE IRA tend to be lower than those of a 401(k) or 403(b). It should also be noted that employees may not make regular IRA contributions to this type of account. With a SIMPLE IRA, your employer is required to make contributions. These amounts may be a match, up to a certain percentage, of your own contribution, or a non-elective contribution, which means the employer must make a set contribution regardless of how much you have contributed yourself.

Table of SIMPLE IRA Contribution Limits

As mentioned, the maximum annual contribution limits are different for each type of IRA account. If you own a SIMPLE IRA, make sure you abide by the table of SIMPLE IRA contribution limits instead of the table for a Roth or traditional IRA. In 2009, the contribution limit to a SIMPLE IRA is $11,500 if you are under age 50. If you are over 50, the limit is $14,000. This $2,500 difference is referred to the catch-up amount. Anyone who turns 50 within the calendar year may make this additional contribution.

The contribution limits will change due to inflation and the cost of living increase each year. This does not mean that the contribution limits are guaranteed to increase each year. This is why it is important to know what the current limits are and what changes have been made, or will be made for the following year. The table of SIMPLE IRA contribution limits is updated often, so make sure to check the amounts at the beginning of each year.