Readers Respond: Are the IRA Contribution Limits Appropriate? Do You Save the Maximum?

Congress determines the maximum amount we may contribute to IRAs each year. Some people think these limits aren't high enough to allow us to save what we really need to for a secure future. Others argue that only the affluent can save the maximum allowed and it is therefore only the wealthy who benefit from the tax savings.

What do you think? How much of the IRA contribution limit do you save every year?

Only in America

Hard to understand how our government wants to limit how much we can save. Or, you can save, but not too much!

—Guest Bill Beerman

The system favors those that save

Enough with the class envy; let's focus on saving strategies and improvements to the current system. I would favor no limits on IRA or 401-k contributions up to your earned income amount for that year. The current limits are arbitrarialy imposed as they are. I fully fund a Roth 401-k at work (with a catch-up maximum) and a Roth outside of work (also with a catch-up). My tax burden will increase in retirement and I will need the tax-free (at that time) funds to help reduce the taxable AGI. Together with my wife we are able to sock away a decent amount annually. Since the Roth 401-k was a relatively recent development at work, I'll still have a sizable amount of deferred balance in the plan when I retire and roll it over. I resent the notion that the current system favors the rich. I'm, living proof to the contrary. But I truly believe the system does favor those that plan carefully and start retirement savings at a very early age.

—mitch_s

Reason not to marry

The article implies that married couples are better off because the max income is $150,000 (combined). But single is $95,000. So if my fiance and I each make just under $95,000 per year, aren't we better off not getting married? We can make nearly $190,000 per year combined and still put our $5000 (each) into a tax saving Roth IRA. Taxes are becoming a reason not to marry.

—Guest John Lions

What do other countries do?

I liked Lenny's response about Canada, and would like to learn more. Please would you do a series of in-depth articles on how other countries deal with this issue?

—MaggieMMM

This system favors those already rich

Many people I know have investment accounts separate from IRAs, because the traditional IRA limits are too low. Their non-IRA investment accounts have very low capital gains taxes, so they can still make a tidy profit. Then they put a lot of that profit into their Roth IRA. It was taxed, but taxed at a VERY low rate before they put it in, and won't be taxed at all when they take distributions. This system is stacked to favor the rich.

—MaggieMMM

the IRS wants it's money

in my opinion traditional IRA's shouldn't have such a stringent limit, the govt' is going to get their money anyway, but for a Roth IRA, If I put in 1000$ (after tax) and it grows to 10000$, the IRS doesn't see a dime from the 9000$ in growth. for a Roth IRA the limit is reasonable considering how generous the IRS usually is with letting income go untaxed. given a 12% rate of return (optimistically) that initial 1000$ investment with no further additions can grow to 256K if started just out of high school or 128K started at age 24. with consistent 5K investments from age 24 at 12% you will have over a million post-tax dollars by age 66 (new retirement age being 67 I believe). At that point you could live in the top 5% of income earners (by today's standards) and that's not including the catch up clause (only another 8K) or the fact that after 2010 the limit will rise with reported inflation.

—Guest Keith

Contirbute to the Maximum Allowing

I have been maximizing my contributions for many years. I started with an IRA, then 403b, then SEP-IRA, and now I have a Solo 401k and a Roth IRA. Plus I have a defined benefit pension from a previous job. If I wish I can retire at 55 before the end of this year.

—Guest DZB

Mr

The one thing I do not understand is why a person working for a company that supports a 401K can save 15,000 dollars while the limt on an IRA is 5,000 dollars. If the limits were raised people who could afford to save more and retire early would exit the work force and make room for college grads looking for work when they exit school. Our current system requires people to work well into the latter years of their life to make sure they will have enough till death.

—Guest Butch Meyer

IRA contributions limits

For raising. I handle my own accounts and you can only do so much with $5000. That makes it really hard to trade covered calls on a lot of your more solid companies--which is a great feature of IRA's. There are not that many people who are going to be able to put much more in anyways, but every now and than they do come across a lot more than the max through inheritance or a settlement. Why not let them protect that money for a future date. And why can't we ever take a look at the rest of the world and see how they do things--Canada has a great system, where your not locked in to the system once you put your money in. Why not raise the contribution limit every decade:20s-5000, 30s-6000, 40s-7000,.... Something progressive--what kind of catch-up is an additional $1000 when your 50--not much. I'd even go so far to say that I' would like to see a forced holding before taxes, with a mandatory company matching for your bigger corporations and heavier taxes on the companies that outsource

—Guest lenny