Individual Retirement Accounts (IRAs) are self-directed individual retirement plans that offer certain tax advantages.
Many financial institutions offer these plans, and IRA owners can invest in any type of investment that the custodian allows, ranging from simple Certificates of Deposit (CDs) to individual stocks and bonds.
An IRS is one of the best ways to save for retirement, but you need to know the limits!
IRA Contribution Deadline
One of the great things about an IRA is that you can contribute to your IRA all the way up until your tax filing deadline for the year.
Note: Due to the coronavirus pandemic, the 2019 IRA contribution deadline has been moved to 7/15/2020 due to the change in tax deadline. The official IRS guidelines for this are here (specifically question #17).
Here are the current IRA contribution deadlines:
2019 Tax Year: July 15, 2020
2020 Tax Year: April 15, 2021
2020 IRA Contribution Limits
The IRS announced the 2020 IRA contribution limits on November 6, 2019. Here's how much you can contribute for 2020. Note: these limits are the same as 2019.
2020 IRA Contribution Limits | |||
|---|---|---|---|
| Traditional IRA | Roth IRA | SEP IRA |
Under Age 50 | $6,000 | $6,000 | Up to 25% of income or $56,000 |
Age 50+ Catch Up Contribution | $7,000 | $7,000 | |
2020 IRA Income Limits
However, there are income limits to contributing to a Roth or Traditional IRA. These limits did adjust for 2020.
2020 Roth IRA Income Limits | |
|---|---|
Filing Status | Roth IRA |
Married, Filing Jointly | Phase out starting at $196,000 - $206,000 |
Married, Filing Separately | Phase out starting at $0 - $10,000 |
Single | Phase out starting at $124,000 - $139,000 |
Head of Household | Phase out starting at $124,000 - $139,000 |
Remember, if you're contributing to a traditional IRA, there are different limits whether you have a workplace retirement plan or not.
2020 Traditional IRA Income Limits | |
|---|---|
Filing Status | Traditional IRA |
Married, Filing Jointly, With Workplace Plan | Phase out starting at $104,000 - $124,000 |
Married, Filing Jointly, Without Workplace Plan, But Spouse Has A Workplace Plan | Phase out starting at $196,000 - $206,000 |
Married, Filing Jointly, Without Workplace Plan, But Spouse Doesn't Have A Workplace Plan | No income limits |
Married, Filing Separately | Phase out starting at $0 - $10,000 |
Single, Not Covered by Workplace Retirement Plan | No income limits |
Single, Covered By Workplace Retirement Plan | Phase out starting at $65,000 - $75,000 |
2019 IRA Contribution Limits
The IRS announced the 2019 IRA contribution limits on November 1, 2018. Here's how much you can contribute for 2019.
2019 IRA Contribution Limits | |||
|---|---|---|---|
| Traditional IRA | Roth IRA | SEP IRA |
Under Age 50 | $6,000 | $6,000 | Up to 25% of income or $56,000 |
Age 50+ Catch Up Contribution | $7,000 | $7,000 | |
2019 IRA Income Limits
However, there are income limits to contributing to a Roth or Traditional IRA. These limits also adjusted in 2019.
2019 Roth IRA Income Limits | |
|---|---|
Filing Status | Roth IRA |
Married, Filing Jointly | Phase out starting at $193,000 - $203,000 |
Married, Filing Separately | Phase out starting at $0 - $10,000 |
Single | Phase out starting at $122,000 - $137,000 |
Head of Household | Phase out starting at $122,000 - $137,000 |
Remember, if you're contributing to a traditional IRA, there are different limits whether you have a workplace retirement plan or not.
2019 Traditional IRA Income Limits | |
|---|---|
Filing Status | Traditional IRA |
Married, Filing Jointly, With Workplace Plan | Phase out starting at $103,000 - $123,000 |
Married, Filing Jointly, Without Workplace Plan, But Spouse Has A Workplace Plan | Phase out starting at $193,000 - $203,000 |
Married, Filing Jointly, Without Workplace Plan, But Spouse Doesn't Have A Workplace Plan | No Income Limits |
Married, Filing Separately | Phase out starting at $0 - $10,000 |
Single, Not Covered By Workplace Retirement Plan | No Income Limits |
Single, Covered By Workplace Retirement Plan | Phase out starting at $64,000 - $74,000 |
2018 IRA Contribution Limits
Here are the 2018 IRA contribution limits. Remember, you can make your contribution all the way until April 15.
| Traditional IRA | Roth IRA | SEP IRA |
|---|---|---|---|
Under Age 50 | $5,500 | $5,500 | Up to 25% of income or $55,000 |
Age 50+ Catch Up Contribution | $6,500 | $6,500 |
2018 IRA Income Limits
It's important to remember that you can only contribute to a traditional or Roth IRA if you meet certain income limits. If you exceed these limits, you can look at a non-deductible IRA (which can be used with a backdoor Roth IRA if you want to).
2018 Roth IRA Income Limits | |
|---|---|
Filing Status | Roth IRA |
Married, Filing Jointly | Phase out starting at $189,000 - $199,000 |
Married, Filing Separately | Phase out starting at $0 - $10,000 |
Single | Phase out starting at $120,000 - $135,000 |
Anyone with earned income and younger than 70 1/2 can contribute to a traditional IRA, but tax deductibility is based on income limits and participation in an employer plan.
What Happens If You Contributed Too Much or Made Too Much?
If you contributed to much, you will need to call your IRA provider and withdraw the excess contribution.
If you made too much money to qualify for an IRA, you would need to do an IRA re-characterization. You can call your IRA company and they can walk you through the process.
Types Of IRAs
Two types of IRAs, Traditional and Roth IRAs, allow employees to control and make contributions to on their own, while the third type of IRA, the SEP IRA, is distinct in being an employer-provided benefit. Below is an overview of each of these three types.
If you don't know which is best for you, check out this guide: The Ultimate Guide To Roth vs Traditional IRA Contributions.
Traditional IRAs
Traditional IRAs are tax-deductible (as long as the owner's income does not exceed certain limits) and tax-deferred retirement accounts, meaning that annual contributions to the IRA are not taxed at the time of contribution and are instead taxed when money is withdrawn.
This may be a good choice for investors who expect to be at a lower income tax bracket in the future (or investors who believe future tax brackets will be lower in general, even if they believe they will be making the same amount of money).
Roth IRAs
Roth IRAs are post-tax retirement accounts, meaning that money contributed to the account has already been taxed.
However, both the amount contributed and future earnings on the investments in the account may be withdrawn without paying further taxes. This may be an advantageous choice for investors who believe they will be in a higher tax bracket in the future.
SEP IRAs
Simplified Employee Pension (SEP) IRAs are used by business owners and must also be offered to all qualifying employees, if there are any.
Employees that are at least 21, who have worked for that employer for three or more years out of the previous five, and who have earned at least $600 (the limit for both 2017 and 2018) for that year qualify to participate in the plan.
Only employers may contribute to a SEP IRA, though they are not locked into making certain annual contributions the same way a 401(k) plan might be.
Withdrawals From IRAs
IRAs, because they are designed to provide for people during their retirement years, impose restrictions on withdrawing funds before retirement age, which is defined as age 59½ or complete and total disability.
If the withdrawal does not meet the requirements for a qualifying exception to these provisions, a 10% penalty will apply to the amount withdrawn.
Final Thoughts
Using either a Traditional or Roth IRA (whichever makes most sense in your tax situation) is an excellent tool in addition to any retirement plan your employer offers, including 401(k) plans and SEP-IRAs.
Individuals should attempt to make the maximum contribution allowed to their Traditional and/or Roth IRAs annually to take full advantage of the tax savings available.
Do you have an IRA? What will you do to try to max out retirement contributions in 2018?
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him here.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.
Aaron Grober says
I have been using backdoor traditional to Roth Conversion for the past several years and have never heard of income limits for a traditional IRA. Please provide the source that states there are income limits to contribute to a traditional IRA (the source that supports this table you provided).
2019 Traditional IRA Income Limits
Filing Status
Traditional IRA
Married, Filing Jointly, With Workplace Plan
Phase out starting at $103,000 – $123,000
Married, Filing Jointly, Without Workplace Plan
Phase out starting at $193,000 – $203,000
Married, Filing Separately
Phase out starting at $0 – $10,000
Single
Phase out starting at $122,000 – $137,000
Single, Covered By Workplace Retirement Plan
Phase out starting at $64,000 – $74,000
This must be new, but I cannot find this information anywhere but here.
Robert Farrington says
It’s not new – it’s the limits that allow you to deduct the contribution to your IRA. You can always do a non-deductible IRA if you exceed these limits (and roll that over for a backdoor).
You can find the updated limits here on the IRS website: https://www.irs.gov/newsroom/401k-contribution-limit-increases-to-19000-for-2019-ira-limit-increases-to-6000