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How much can I contribute to my money market IRA?

December 11, 2014

By Richard Barrington | MoneyRates.com Senior Financial Analyst, CFA

money market IRA

Q: What is the maximum annual amount I can contribute to my money market IRA account?

A: There are some variables to this, so you should probably got to the IRS website to check out the details of your situation. However, in general terms these are some of the key limits:

  1. The standard IRA contribution limit for 2014 and 2015 has been set at $5,500.
  2. The government recognizes that many Americans have lagged behind on their retirement savings, so you can contribute an extra $1,000 a year if you are aged 50 or older, bringing the total maximum annual contribution to $6,500.
  3. You cannot contribute to a traditional IRA in the year when you will reach age 70 1/2. You can, however, contribute to a Roth IRA regardless of age.
  4. The amount you can contribute is not necessarily tax deductible. Most notably, if you or your spouse are covered by a retirement plan at work, then your ability to deduct your IRA contribution might be limited or disallowed completely. The nature of these restrictions depends on your income, your tax filing status, and how you are covered by the employer's plan, so be sure to see the IRS website for details.

With regard to an employer-sponsored plan, people are sometimes torn between whether to contribute to an IRA or to their retirement plan at work. Ideally, you could maximize your tax advantages by contributing to them both, but people cannot always afford to do that. So, if you have to choose, here are some of the factors you should consider:

  1. Whether there is an employer match. If your employer makes a full or partial match of contributions to your retirement plan, then you should contribute enough to that plan to get the most out of this match.
  2. The range of investment options open to you. Your employer's plan may have investment choices that you would not have access to individually. On the other hand, you may not want to be limited to the menu of choices your employer has chosen.
  3. The fees associated with the retirement plan compared with the fees on an IRA account.

Finally, while you happen to have specified a money market IRA account, keep in mind that you are not limited to investing your IRA in a money market account. In particular, if you have a long time to go until retirement, you may want to put some of it in growth vehicles -- especially given the low level of rates on money market and savings accounts these days.

If you do decide to keep it in a money market account, be sure to make the best of today's rate environment by shopping around for the best money market account rates.

Got a question about saving, investing or banking? MoneyRates.com invites you to submit your questions to its "Ask the Expert" feature. Just go to the MoneyRates.com home page and look for the "Ask the Expert" box on the lower left.

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