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What are the IRA Contribution Limit Rules?

For 2010 and 2011, the most that an individual can contribute to a traditional IRA or Roth IRA generally is the smaller of:

$5,000 ($6,000 if the individual is age 50 or older), or

– the individual’s taxable compensation for the year

This is the most that can be contributed regardless of whether the contributions are to one or more traditional or Roth IRAs or whether all or part of the contributions are nondeductible. However, other factors may limit or eliminate the ability to contribute to an IRA as follows:

Age 70½ rule. An individual who is age 70½ or older cannot make regular contributions to a traditional IRA for the year.

Limit if Covered by Employer Plan. The deduction an individual can take for contributions made to his or her traditional IRA depends on whether the individual and his or her spouse was covered for any part of the year by an employer retirement plan. The deduction is also affected by how much income the individual had, by his or her filing status and by social security benefits the individual received.

The deduction begins to decrease (phase out) when the individual’s income rises above a certain amount and is eliminated altogether when it reaches a higher amount. These amounts vary depending on the individual’s filing status.

Individuals can determine if their deduction is subject to the phase-out, by determining their modified adjusted gross income (AGI) and filing status, as explained in Pub 590. Once he or she has determined his or her modified AGI and filing status, the individual can use the Tables in Pub 590 to determine if the phase-out applies.

Spousal IRA Limit. For 2010 and 2011, if an individual files a joint return and has compensation less than his or her spouse, the most that he or she can contribute to an IRA for the year is the smaller of:

1. $5,000 ($6,000 if age 50 or older), or

2. Both spouses’ total compensation includible in gross income for the year, reduced by:

a. The spouse’s IRA contribution for the year to a traditional IRA.

b. Any contributions for the spouse’s Roth IRA for the year.

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