IRA Contribution Limits 2004 and 2005

IRA Contribution Limits have been increasing over the past several years and that is good news if you're saving for retirement.  For many years, the contribution limit stood at $2,000, but policymakers have realized that inflation made this old limit inadequate in meeting the retirement needs of individuals.  So if you are using IRAs to fund retirement, we have some good news about the 2004 and 2005 limits.  We will even discuss the catch up limit that can help you get more money into your IRA faster.

To help you to better understand some of the 2004 and 2005 changes, we are going to separate the IRA contribution limits for traditional IRAs, Roth IRAs and SIMPLE IRAs when we need to.  If we don't specifically identify the limit or contribution rule for a particular IRA, you can assume that the commentary applies to all three.

Contribution Limit Changes in 2004

• Your filing status is married filing jointly and your AGI is more than $65,000 but less than $75,000.
• Your filing status is single, head of household and your AGI is more than $45,000 but less than $55,000.
• Your filing status is married filing separate returns your deductible phase out starts at under $10,000.

In 2004 salary reduction contributions that your employer can make for a SIMPLE IRAs increased from $8,000 to $9,000.  For workers that are age 50 and older, you employer can make additional "catch up" contributions of $1,500 in 2004.

Contribution Limit Changes in 2005

In 2005 the deductible contribution limit for a traditional IRA was increased to $4,000.  If you reach the age of 50 before 2006, then your limit is $4,500 in 2005.  The traditional IRAs also experienced a change in the deductibility rules in 2005.  If you are covered by retirement plan at work, then your deductible contribution to a traditional IRA is phased out if:

• Your filing status is married filing jointly and your AGI is more than $70,000 but less than $80,000.
• Your filing status is single, head of household and your AGI is more than $50,000 but less than $60,000.
• Your filing status is married filing separate returns your deductible phase out starts at under $10,000.

The Roth IRA contribution limits also changed in 2005.  Your contribution limit to a Roth in 2005 now stands at $4,000 and for those that are age 50 and over before 2006, your catch up contribution is $500 enabling you to contribute $4,500 to a Roth.

Roth IRAs can have some pretty complex rules associated with them, for more complete information in this area we suggest you take a look at our article on Roth IRA Contribution Limits.

The final change for 2005 applies to SIMPLE IRAs.  The employer salary reduction contributions were raised to $10,000 under these plans in 2005.  For workers that are age 50 and older, you employer can make additional "catch up" contributions of $2,000 in 2005.

A Summary of IRA Contribution Limits

To make it simple, we are going to translate most of the above information into a couple of simple tables.  We are going to do this only for Roth IRAs and traditional IRAs because most SIMPLE plans are normally administered by your employer.

Most of this information is detailed in our articles on Traditional IRA and Roth IRA Contribution Limits.  So that it is all in one place, we are showing that same information again below:

Traditional IRA Contribution Table

Traditional IRA AGI Deduction Limits
(If Covered by a Retirement Plan at Work)

Traditional IRA AGI Deduction Limits
(If NOT Covered by a Retirement Plan at Work)

Roth IRA Contribution Table

Additional information on these contribution rules can be found on the IRS website.

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