IRA contribution limits 2010
IRA contribution limits 2010 should be observed by every investor that contributes to an individual retirement account (IRA). Failure to do so can result in financial hardship or potentially tax consequences. Whether it be a traditional or a Roth IRA, investors should be cognizant of exactly how much they contribute in any given tax year.
IRA contribution limits for 2010 are $5000 for participants who are under 50 years of age. Those who are over 50 may enjoy a catch up rule that allows for the contribution of an additional $1000. This makes the total IRA contribution amount $6000 for participants over 50. Participants in any IRA should check their eligibility for full contributions. The adjusted gross incomes (AGI) and participation in employer sponsored plans may effect the ability to fully contribute to an IRA.
Perhaps the biggest problem with IRAs, aside from under contributing that can result in not meeting up with personal retirement needs, is over contributing. Exceeding the maximum IRA contribution amount can result in the assessment of an excise tax. However, most over contributions are purely accidental. Therefore, it is imperative that IRA participants keep track of the exact dollar amount of their contributions in any given tax year.
Since over contributing to an IRA is not an uncommon event, many investment firms that offer them, will return excess contributions to the participant without penalty. Even though investment companies offering IRAs may return excess contributions to participants, there is a myriad of paperwork that is usually required and must ultimately be submitted to the Internal Revenue Service (IRS). However, returning excess contributions is dependent upon the amount of over contribution, the tax deadline date, the age of the participant and the underlying investment itself.
The excise tax imposed for over contribution is intended as a penalty administered by the federal government for exceeding the limits of that tax year. For any unreturned excess IRA contributions, the imposed tax penalty is 6% for every year that those funds remain in the IRA. Included in the 6% excise tax is all earnings, including capital gains and dividends acquired from the excess amount.
IRA participants have until April 15th of the following tax year to reach their contribution limits. For example, anyone investing in an IRA in the 2009 tax year has until April 15 of 2010 to fully contribute to their IRAs. Those with multiple IRAs must understand that they cannot exceed the contribution limits for the current tax year. Regardless of participating in more than one IRA, the contribution limits remain the same. The IRA contribution limits 2010 remain at $5000 for those participants who are under 50 years of age. Those who are over 50 may still contribute a total of $6000. Therefore, if a participant owned two IRAs, the sum of all contributions within both of them cannot exceed $5000 for those under 50, and $6000 for those participants over 50.
The most important aspect of participating in an IRA is observing the current tax year’s contribution limits. By knowing how much an IRA participant can contribute, will avoid the potential for a penalty and a bunch of unwanted paperwork.