Preparing for retirement means exploiting tax advantage investments like IRAs but, in order to get the maximum advantage, knowing exactly how much you can put into them is vitally important. To that end, this blog has all of the info on 2014’s IRA contribution limits including traditional and Roth IRAs. Enjoy.

The benefit of a traditional IRA is that you can put money into it now on a pretax basis and, until you withdraw it, it grows free of taxes. When you do finally withdraw it (assuming that you’ve followed all of the applicable rules) the money you take out is then taxed at your current rate. This means another benefit for most people because the rate that they will have during their retirement is usually going to be lower than the rate they have when they put the money away. Not only that but your pretax contributions actually lower your current  taxable income and thus you pay even less.

A Roth IRA work slightly differently in that you contribute money after it’s been taxed. This doesn’t change your current taxable income but, again if you’ve followed all of the rules, once you withdraw it you won’t be taxed again. If you’ve saved quite a bit of money and have invested wisely, the benefit of a Roth IRA can be substantial.

The 2014 Limits.

While there are a few new “wrinkles” in 2014, the average worker will be able to contribute $5500 and, once they hit 50, another $1000 or $6500 in total for people 50 years older and up. For a Roth IRA this year your contributions will need to be made with earned money. That’s an unusual distinction that means that, for example, if you’ve been given an inheritance or gifted a large amount of money at your bat mitzvah, you won’t be able to put it into an IRA next year (unfortunately).

The rules for contributions in 2014 let people of moderate income contribute without a problem but those with above average incomes may actually find that they have reduced limits or can’t contribute anything. The Internal Revenue Service has all of the details on their website.

Roth IRA contribution limits in 2014 are unchanged for people filing as a single person who have less than $114,000 in modified adjusted gross income or married couples who have AGI’s of less than $181,000 and file jointly.

It’s possible to get around the Roth IRA contribution limits by converting a traditional IRA to a Roth but make sure you run the numbers first (or have a professional run them for you) because any converted amount will be counted as taxable income. What that means is that if you convert a large sum from a traditional IRA to a Roth the upfront costs might be relatively high (but potentially worth it if you look at the gains in the long run). It might also be possible to convert your 401(k) to a Roth IRA using the same method.

2014 401(k) Limits

We’ve thrown in a little bonus for you with some information on the 401(k) contribution limits for 2014. As you might already know, 401(k)s are similar in many ways to traditional IRAs when it comes to taxes. The contribution limits for a 401(k), 403(b) and most 457 plans for 2014 is $17,500 and, if you are 50 years of age or older, you can throw in another $5500.

If you have any questions about IRAs, 401(k) plans or retirement planning in general, please let us know and we’ll get back to you ASAP with advice, answers and options.