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IRA Contribution FAQs
How do contributions work?
An IRA contribution is the money you save in a retirement account. Contributions may be limited or have maximums for the year. It’s important to know that the total maximum contribution limit applies to all of your IRAs combined. For example, if you want to make a Traditional IRA contribution and also contribute to a Roth IRA, the total amount that you can contribute for the 2022 tax year is $6,000 ($7,000 if over age 50).
Who is eligible to make IRA contributions?
To make contributions to an IRA, you (or your spouse) must have earned income. As of December 2019, there is no age limit if you have earned income. Earned income includes money from wages when you work for someone or from self-employment income.
Are IRA contributions tax-deductible?
Contributions to IRAs may be tax-deductible (except for Roth IRA). Deductions are determined by income and if you are covered by another plan at work. Everyone’s situation is different. We highly recommend that you consult with a qualified tax or financial professional for guidance.
Can I contribute to more than one IRA or plan?
Yes. You can contribute to a traditional or Roth IRA even if you participate in a plan through your employer or business; 401(k), SIMPLE, SEP, and so on. However, your contributions and deductibility may be limited if you (or your spouse) are participating in a plan at work, making contributions to a Spousal IRA, and your income exceeds certain amounts. We recommend that you discuss retirement planning with a tax or financial professional.
What is the maximum IRA contribution for 2022?
The maximum depends on the IRA. For Roth IRA and Traditional IRA the maximum is $6,000. If you are over 50 years of age you can contribute $1,000 more (total of $7,000). For a SEP IRA, the contribution limit is up to 25% of compensation, with a maximum of $61,000. And for a SIMPLE IRA, employee contribution limit is $14,000 if you are under 50 years— if you are over 50 the maximum is $17,000. Excess amounts are taxed at 6% per year for each year the excess amount remains in the IRA.
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Contributing to an individual retirement account (IRA) is a great way to boost your retirement savings and benefit from tax-sheltered investment growth. Depending on your income and other factors, you might even get a tax deduction.
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Traditional IRA Contribution Limits for 2022 and 2023
The annual contribution limit for a traditional IRA in 2022 is $6,000 or your taxable income, whichever is lower. If you were 50 or older by the end of 2022, you can contribute up to $7,000 total.
The annual IRA contribution limits for 2023 are $6,500 or your taxable income, whichever is lower. If you are 50 or older by the end of 2023, the contribution limit is $7,500.
Tax Deductions for Traditional IRA Contributions
Contributions to a traditional IRA may be tax-deductible for some investors. If you (and your spouse, if you’re married) are not covered by an employer-sponsored retirement plan, you may deduct your full contribution from your taxes.
For example, if you didn’t have access to a workplace 401(k) plan and you contributed $6,500 to a traditional IRA in 2023, you’d be able to deduct $6,500 from your taxes. Same deal if you’re married and neither spouse is covered by a retirement plan at work.
If you (and your spouse, if you’re married) are covered by an employer-sponsored retirement plan, then the traditional IRA tax deduction may be limited based on your modified adjusted gross income (MAGI)—that’s your income before subtracting the student loan interest tax deduction and other tax deductions. Check your eligibility for a traditional IRA tax deduction on the table below:
Higher Tax Deduction Income Limits for Some Married Couples
There is a separate set of income thresholds for traditional IRA tax deductions for married couples where one spouse is covered by a workplace retirement plan and the other spouse is not—or doesn’t work, for instance. Check your eligibility for a tax deduction on the table below:
Roth IRA Contribution Limits for 2022 and 2023
Roth IRAs have the same annual contribution limits as traditional IRAs. In 2022 you can contribute up to $6,000 or your taxable compensation, and in 2023 you can contribute up to $6,500. If you are 50 or older by the end of 2022, you may contribute up to $7,000 to a Roth IRA in that year. This amount rises to $7,500 in 2023.
Not everyone is allowed to contribute to a Roth IRA, however. If your income is above certain thresholds, you may be ineligible for a Roth IRA or your contributions may be limited. Here are the Roth IRA income thresholds for 2022 and 2023:
IRA Calculator
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Exceptions to IRA Limits and Recent Changes
As with all things, there are exceptions to the rules for IRA contributions:
• Non-working spouses without income may contribute to an IRA. If you do not have taxable compensation, but file a joint return with a spouse who earns income, you can open up an IRA in your own name and make contributions through a spousal IRA. The contribution limit for both spouses is double the annual thresholds outlined above.
• Contribution limits don’t apply to rollover contributions. If you roll another retirement plan—such as a 401(k) from a previous employer— into your IRA, the rollover doesn’t count toward the annual contribution limit.
What Happens If You Contribute Too Much to an IRA?
If you aren’t careful with your IRA contributions, you can exceed the annual limits. People who are juggling multiple IRA accounts or who set automated contributions too high could end up putting too much money in a Roth IRA or a traditional IRA.
If you’ve exceeded contribution limits, the IRS charges a 6% tax each year on the excess contributions in your account, unless you fix the situation. If you realize your error before you file your tax return, you may withdraw the excess contributions—including earnings—ahead of the tax filing deadline to avoid the 6% tax.
However, you may have to pay income taxes on the earnings and an additional 10% early withdrawal penalty on the amount of extra contributions you withdraw if you are under the age of 59 ½.
If you don’t catch the problem until after you’ve filed your tax return for the year, you can remove the excess contributions and file an amended return by Oct. 15. If you miss the later deadline, you can still fix it by reducing next year’s contributions by the excess amount. But you’ll have to pay the 6% penalty until the excess contributions are corrected.
If you contributed too much to your IRA, it might be a good idea to talk with a tax professional or a financial advisor about setting up better ways to manage your contributions.
Retirement Calculator
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What Is the Saver’s Credit?
To encourage taxpayers to save for retirement, the government offers an incentive: the Retirement Savings Contributions Credit, also known as the Saver’s Credit, which provides a credit when you file your tax return when you contribute to a retirement account. Available to low- and moderate-income earners, you may be eligible for the credit if:
• You make contributions to an IRA or an employer-sponsored retirement plan
• You are age 18 or older
• You’re not a full-time student
• You aren’t claimed as a dependent on someone else’s tax return
For IRA contributions, the amount of the Saver’s Credit is 50%, 20%, or 10% of your contributions, depending on your adjusted gross income. The maximum qualifying contribution is $2,000 ($4,000 if married and filing a joint return), so the maximum Saver’s Credit is $1,000 ($2,000 total for a couple).