Traditional, 401k, 403B and Roth are all types of IRAs. An IRA is quite simply an individual retirement account. Each year, some changes are made to the amount you can contribute to your IRA(s), and the tax benefits you can glean from having done so. The rules pertaining to contributions and phase outs have remained fairly intact over the last year. This is mostly because there has been little change in the Consumer Price Index over the last year.
In terms of allowable contributions in 2011 for 401k and 403B there is a cap of $16,500 if you are under the age of 50. If you are older than that you are allowed to contribute up to $22,000. Traditional IRA contributions caps are at $5,000 if you are under 50, and $6,000 if you are over. With Traditional IRAs, most people can deduct the amount contributed, but there are some guidelines to this which you should discuss with a qualified retirement planner.
Although you may know what a contribution is (as it is an intuitive) statement, you should understand what phrase out means. Quite simply, the refers to a gradual reduction of the tax credit you receive as you approach the income limit to qualify for that credit.
The simple case regarding phase out is if you are single, the head of household or a qualified widow or widower. This category of people are permitted to deduct their full IRA contribution. There is phase out here. If you make up to $107,000 per year, you can contribute fully. If you make between $107,000 and $122,000 you are in the phase out category. If you make more, you cannot contribute.
There is a whole different set of numbers of you are married and file joint tax returns, and this is one area where the rules have changed since 2010. For Traditional and ROTH IRAs, you can contribute fully as long as you make up to, but not more than, $168,999. Phase out begins at $169,000, and if your combined earnings are over $179,000 you cannot contribute at all.
Finally, there is one more little nuance in the 2011 rules. This refers to your adjusted gross income (AGI). If you prefer to calculate your allowable contributions using these figures, the numbers change. Those who fall into the single, head of household category can take the full deduction up to $56,000. Phase out then begins, and maxes out at $66,000. Those who are married and file jointly can deduct the full amount of their AGI up until $90,000, and as you might expect, phase out begins here. Reduced deductions are allowed up to $110,000, and above that there is no deduction.
With this information in hand, all you probably need to gain maximum benefit from making IRA contributions is your tax bracket, the number of years you intend to keep working and a calculator. It’s not rocket science, and you should definitely take the time to see just how much bang from your buck you can get, each and every year.