Don't forget the limits on retirement contributions

Keeping on top of how much you can contribute to retirement accounts and how much you can deduct on your taxes hasn't been easy lately.

Tax law changes that will continue over the next few years are gradually raising contribution limits, though not every year and not for every type of retirement account. But you might get help from family members you didn't know were eligible - even the children.


The most you can contribute in 2004 to a traditional individual retirement account for yourself or a nonworking spouse is $3,000 of earned income, according to Dianne Besunder of the Internal Revenue Service. Those 50 years of age and older can add another $500, called a "catch-up contribution," for a maximum of $3,500. People older than 70 1/2 cannot contribute anything to an IRA, even if they have earned income.

If you have a 401(k) at work, you can contribute up to $13,000 in 2004 if you are under age 50, and $16,000 if you are 50 or over.


Let's take Harry, 51, who works for himself and makes $150,000 a year. His wife, Harriet, turning 50 this year, is a stay-at-home mom.

Harry has no pension, 401(k) or other retirement plan.

Their two children, Andy and Annie, are 10 and 12. Andy cuts lawns for neighborhood families every summer and Annie baby-sits. Last year, Andy made $1,000 and Annie $1,200.

Harry's father lives with the family. Gramps, age 71, works a few hours a week at the library, earning about $1,000 a year.

Everybody except Gramps is eligible to contribute to a traditional IRA, though the amounts vary.

For 2004, Harry can contribute $3,500 to his own IRA, plus an additional $3,500 if he didn't put money into an IRA in 2003. The 2003 contribution must be completed before April 15, 2004.

Though Harriet has no earned income, she can set up a spousal IRA in her name and contribute $3,500 for 2004 and $3,000 for 2003, when she was under 50.

Because Andy earned $1,000 in 2003, he can contribute a maximum of $1,000 to his IRA. Annie can contribute up to $1,200, again, the total of her earnings.


Gramps cannot set up an IRA even though he has earned income, since he is over 70 1/2 .

Harry and Harriet file a joint tax return on which their traditional IRAs can be deducted. If they max out their contributions, they'll jointly be able to deduct $6,500 on their 2003 return and $7,000 when they file a return for 2004.

If Harry had been a participant in a retirement plan, he would not have been able to take a deduction because his "modified adjusted gross income" is too high. MAGI is defined in IRS Publication 590, available by calling 800-TAX-FORM or online at

Because of 2003 and 2004 changes, more people qualify for a deduction, so check the publication or with your tax adviser.

Contribution limits to Roth IRAs are the same as traditional IRAs. Roths are not deductible when you put money into them but, unlike traditional IRAs, distributions are not taxed when they come out.

Attorney Julie Jason is a Stamford, Conn., money manager and retirement finance author.