Retirement Plans - IRA Contribution Rules and Penalties

Traditional IRA and Roth IRA Contribution Limits

• The maximum allowable annual contribution to a traditional IRA and Roth IRA is:

  • $6,000 for a person younger than age 50.
  • $7,000 for a person age 50 or older.

• If a 40-year-old individual has both a traditional and Roth IRA, they cannot contribute more than $6,000 overall. This means they cannot contribute $6,000 to each IRA.

Deduction Rules for Traditional IRA Contributions

• An IRA participant's ability to take a deduction for their contribution depends on two factors:
  1. Whether an employer-sponsored retirement plan covers the participant.
  2. The amount of income the participant earns.

Required Minimum Distributions (RMDs) for Traditional IRAs

• Traditional IRA owners must begin to receive payments from their accounts no later than April 1 following the year in which they reach age 72.

Exceptions to the 10% Early Distribution Penalty

• Early distributions will not be assessed the 10% penalty if taken for any of the following reasons:
  • The owner dies or becomes disabled.
  • The owner is faced with a certain amount of qualifying medical expenses.