A traditional individual retirement account (IRA) is one tool that savers can use to plan for retirement. It allows you to sock away funds for the future in a tax-advantaged way. But the IRS limits how much you can contribute to these retirement accounts each year. In 2019, that limit is $6,000 for people under 50 and $7,000 for people age 50 and older. There are also limits to who can contribute to these accounts, which are based on your income and whether you’re covered by a workplace retirement plan.
IRA Contribution Limits
For the 2019 tax year, the maximum contribution you can make to a traditional or Roth IRA is $6,000. This is an increase from the 2018 limit of $5,500. This limit applies if you’re under the age of 50. If you’re age 50 or older, you may contribute up to $7,000.
You can no longer make regular contributions to a traditional IRA beginning with the year you turn 70 1/2. But you can continue to make regular contributions to a Roth IRA for as long as you live. There’s also no age limit for making rollover contributions to a traditional or Roth IRA.
Remember that you can still contribute to your IRA for the previous tax year until tax day of the following year. Contributions to your IRA for the 2019 tax year began on January 1, 2019, and you have until April 15, 2020 to make a contribution that counts toward that year’s limit.
Roth IRA Income Limits
Your ability to contribute to a Roth IRA is limited depending on your filing status and modified adjusted gross income (MAGI). For the 2019 tax year, those limits start to kick in for MAGIs above $122,000. Single filers and heads of household with a MAGI between $122,000 and $137,000 can only contribute a reduced amount. If you make more than $137,000, you cannot contribute to a Roth IRA at all. (For 2018 the phase-out range for Roth IRAs was $120,000 to $135,000.)
Married couples filing jointly have an income phase-out range of $193,000 to $203,000, with no contributions allowed if your MAGI is over $203,000. These limits are likewise up from 2018, when the phase-out range for married couples was $189,000 to $199,000.
If you’re married but filing separately, your phase-out range is the same as that for single filers – but only if you and your spouse don’t live together. If you’ve lived together at all for the past year, your ability to contribute is severely restricted, with a phase-out range between $0 and $10,000. You won’t be able to contribute to a Roth IRA if you make more than $10,000.
Which IRA Contributions Are Tax Deductible?
Roth IRA contributions are not tax deductible. The benefit you receive is not an upfront deduction, but the ability to take tax-free withdrawals once you hit retirement.
Traditional IRA contributions can generally be deducted on your taxes. As an added bonus, this is considered an above-the-line deduction, which means you can deduct your contribution even if you’re not itemizing deductions. With more and more Americans taking the standard deduction due to the Trump Tax Plan, this is a big benefit.
However, not everyone is eligible to deduct their contribution to a Traditional IRA. If you or your spouse have an employer-sponsored retirement plan like a 401(k), you may not be able to deduct your full contribution. Whether you’re eligible for a full or partial deduction also depends on your MAGI and filing status.
Let’s say you’re covered by a retirement plan at work and you want a deduction for your IRA contributions. For the 2019 tax year, the phase-out range for single and head of household tax filers is $64,000 to $74,000, with no IRA deduction allowed for filers with a MAGI over $74,000 and who have a workplace plan.
For married couples filing jointly, the phase-out range is $103,000 to $123,000. The phase-out range for married couples filing separately is $0 to $10,000. Again, there’s an exception for married people filing separately who did not live together in the last year – for these filers, the income limits for single filers apply. Note, too, that a spouse who’s filing a joint tax return can contribute to an IRA even if he or she has no taxable income (as long as the partner has taxable income).
If neither you nor your spouse is covered by a workplace retirement plan, there’s no income limit for taking the deduction.
Excess IRA Contributions
Mistakes happen. Sometimes taxpayers make excess IRA contributions. This can happen when you exceed the IRA contribution limit or contribute to a traditional IRA after you turn 70 ½. An improper rollover contribution to an IRA also counts as an excess contribution.
These excess contributions get taxed at 6% per year as long as the extra amounts remain in the retirement account. To avoid this penalty, you’ll need to withdraw your excess contributions by the tax filing deadline. Also, don’t forget to withdraw any earnings generated by your extra contributions.
It’s important to pay attention to the annual IRA contribution limits. Knowing the rules will allow you to maximize the tax benefits of your retirement contributions. Plus, failure to adhere to these limits may result in a tax penalty. Before filing your taxes, it’s best to double-check and make sure you didn’t contribute more than you were supposed to or claim a deduction you weren’t eligible for.
Tips for Getting Retirement Ready
- The first step in planning for retirement is figuring out how much you’ll need to save to retire comfortably. Once you have a sense for what you need, you can adjust your savings rate and investments accordingly.
- A great way to achieve your retirement goals is to work with a financial advisor. Many advisors specialize in retirement planning, and will build an investing plan that helps you achieve your goals. You can find an advisor today using SmartAsset’s free financial advisor matching service. Just answer some questions about your situation and goals and the program will automatically match you with up to three advisors in your area. You can then review their credentials and interview them to choose the best advisor for your needs.
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