How Much Money Can I Put into My IRA or Employer-Sponsored Retirement Plan?

All types of IRAs and employer-sponsored retirement plans are subject to annual contribution limits set by the federal government. The limits are generally adjusted periodically to compensate for inflation and the increase in the cost of living.

IRAs

For the 2012 tax year, you can contribute up to $5,000 to all IRAs combined, the limit will be adjusted for inflation annually. For instance, if you have a traditional IRA as well as a Roth IRA, you can only contribute a total of the annual limit in one year, not the annual limit to each.

If you are age 50 or older, you can also make an annual $1,000 “catch-up” contribution.

Employer-Sponsored Retirement Plans

Employer-sponsored retirement plans, such as 401(k)s and 403(b)s, have a 2012 contribution limit of $17,000; individuals aged 50 and older can contribute an extra $5,500 as a catch-up contribution.

If you are currently contributing to an IRA or an employer-sponsored retirement plan, it may be wise to check the contribution limit each year in order to put aside as much as possible.

Distributions from traditional IRAs and most employer-sponsored retirement plans are taxed as ordinary income and may be subject to an additional 10% federal income tax penalty if taken prior to reaching age 59½. If you participate in both a traditional IRA and an employer-sponsored plan, your IRA contributions may or may not be tax deductible, depending on your adjusted gross income.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2012 Emerald Connect, Inc.
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Gregory B. McLean, Stephen L. Caruso, Mark Steckler and Lori A. Glennon are Registered Representatives of and offer securities products & services through Royal Alliance Associates, Inc. Member FINRA/SIPC, a registered broker dealer. In this regard, this communication is strictly intended for individuals residing in the states of Arizona, Connecticut, Florida, Georgia, Indiana, Massachusetts, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Texas, and Virginia. No offers may be made or accepted from any resident outside the specific states referenced.

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The views expressed are not necessarily the opinion of Royal Alliance Associates Inc, and should not be construed directly or indirectly, as an offer to buy or sell any securities mentioned herein. Individual circumstances vary.

All Investing involves risk including the potential loss of principal. No investment strategy such as asset allocation can guarantee a profit or protect against loss in periods of declining values. Past performance is no guarantee of future results. Therefore, the information presented here should only be relied upon when coordinated with individual professional advice.

Periodic investment plans such as dollar cost averaging do not assure a profit or protect against a loss in declining markets. Such plans involve continuous investment in securities regardless of fluctuating price levels. Investors should consider their financial ability to continue purchases through periods of low price levels.

Indexes cannot be invested in directly, are unmanaged and do not incur management fees, costs and expenses

Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors. Securities sold or redeemed prior to maturity may be subject to a substantial gain or loss. In general, the bond market is volatile as prices rise when interest rates fall and vice versa. Vehicles that invest in lower-rated debt securities (commonly referred to as junk bonds) involve additional risks because of the lower credit quality of the securities in the portfolio. The investor should be aware of the possible higher level of volatility, and increased risk of default.

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