Contributing to Your IRA

The most that you can contribute to your retirement IRA in 2011 is the smaller of $5,000 or an amount equal to your compensation includible in income for the year. Also, if you are at least age 50 during the year you can make an additional $1,000 "catch-up" contribution, increasing your allowable contribution limits to $6,000 in 2011.

The same general contribution limits apply if you have more than one IRA, or more than one type of IRA. The contribution must be from "compensation," which means wages, salaries, commissions, net self-employment income, and other sources of earned income. It does not include deferred compensation, retirement payments, or portfolio income such as interest or dividends. When both a husband and wife have compensation, the limit applies separately to each, so that in 2011 as much as $10,000 can be contributed ($12,000 if they are both at least 50 years of age).

If one spouse does not work or has very little income, a married couple filing jointly may still contribute up to $5,000 for each spouse's account (or $6,000 if at least age 50), as long as the couple's joint earned income exceeds their joint IRA contributions. Separate accounts must be used for each spouse.

Work Smart An IRA can be established, and/or a contribution made, after year-end. It must be made no later than the due date for filing the income tax return for that year, not including extensions. This generally means that you have until April 15th of the following year to make the contribution, and to deduct it on your tax return if you qualify for the deduction. You don't have to contribute the full amount every year. You may skip a year or even several years. You may resume making contributions in a later year, but you cannot "catch up" for years no contribution was made. If you contribute more than the allowable amount, a 6 percent excise tax penalty will be assessed. This penalty is due for the year of the excess contribution and for each year thereafter until corrected. However, you can generally avoid this tax by removing any excess contributions by the due date of the return for the tax year for which they were made. No contributions may be made to: (1) an inherited IRA, (2) in a form other than cash, or (3) during or after the year in which the individual reaches age 70-1/2.