For 2023, you can invest up to $6,500 in your IRA if you’re younger than 50, or $7,500 if you’re 50 or older. This is an increase from 2022, when the limits were $6,000 and $7,000, respectively. The IRS limits how much you can contribute to your retirement accounts each year, as they are tax-advantaged accounts. In some cases, there are also stipulations on who can contribute to these accounts. However, these rules aren’t dictated by age, but rather by your income and whether you’re covered by a workplace retirement plan. If you need help planning for retirement then consider speaking with a financial advisor.
IRA Contribution Limits for 2023
For the 2023 tax year, the maximum contribution you can make to a traditional or Roth IRA is $6,500. This limit was lower in 2022 at $6,000. This cap only applies if you’re under the age of 50, as those 50 and older can contribute “catch-up contributions,” which add an extra $1,000 to this limit, pushing it to $7,500.
Prior to 2020, you could no longer make regular contributions to a traditional IRA beginning the year you were set to turn 70.5. However, the SECURE Act of 2019 eliminated the age limit. As a result, regular contributions to traditional and Roth IRAs could continue after age 70.5. However, with the Secure Act 2.0 passed in 2022, your traditional IRA is subject to required minimum distributions (RMDs) after you turn 73.
Remember that you can still contribute to your IRA for the most recent tax year until Tax Day of the following calendar year. In other words, IRA contributions can begin on the first day of the year and can continue to be made until tax day for that year. So for 2023, you could start making contributions on Jan. 1, 2023, and could continue to do so until mid-April of 2024 when the tax deadline occurs.
Roth IRA Income Limits for 2023
For tax year 2023, single filers and heads of household with a MAGI from at least $138,000 up to $153,000 can only contribute a reduced amount. If your MAGI is less than $138,000, then you can contribute the full amount. But if you file single and make equal to or more than $153,000, you cannot contribute to a Roth IRA at all. These figures are up from those for tax year 2022, when they were $129,000 and $144,000.
For tax year 2023, married couples filing jointly have an income phase-out range of $218,000 up to $228,000. Therefore no contributions are allowed if the couple’s MAGI is equal to or more than $228,000. Again, those with an income below $218,000 can contribute up to the full amount. If you’re married, but filing separately, your phase-out range is just $10,000, which is the same amount each year. These are also up from tax year 2022, when these figures were $204,000 and $214,000.
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 from 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.
However, not everyone is eligible to deduct their contribution from 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 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 2023 tax year, the phase-out range for single and head of household tax filers is $73,000 to $83,000, with no IRA deduction allowed for filers with a MAGI higher than $83,000 and who have a workplace plan.
For married couples filing jointly, the phase-out range for tax year 2023 is $116,000 to $136,000. For tax year 2022, married couples filing jointly had a lower phase-out range of $109,000 to $129,000.
What If I Surpass the IRA Contribution Limit?
Sometimes taxpayers overpay into their IRA, and these are called excess contributions. This can happen when you exceed the IRA contribution limit or improperly roll over a 401(k) into an IRA.
A 6% per year tax rate applies to these excess contributions for each year 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 Saving for Retirement
- A financial advisor can help you plan for retirement. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- The first step in planning for retirement is figuring out how much you’ll need to save to live comfortably. Once you have a sense for what you need, you can adjust your savings and investments accordingly.
Photo credit: ©iStock.com/FangXiaNuo, ©iStock.com/Maks_Lab, ©iStock.com/Credit:Andrii Yalanskyi