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IRA Contribution Limits

IRA Contribution Limits refer to the maximum amount of money that an individual can contribute to an Individual Retirement Account (IRA) within a given tax year. These limits are set by the Internal Revenue Service (IRS) and may change periodically to account for inflation or other factors.

Contribution Limits

  1. Traditional IRA: For 2024, individuals can contribute up to $6,500 per year to a Traditional IRA. People aged 50 and older are allowed to make an additional “catch-up” contribution of $1,000, bringing the total limit for them to $7,500.
  2. Roth IRA: The contribution limits for Roth IRAs are the same as those for Traditional IRAs. In 2024, individuals can contribute up to $6,500 per year, with an additional $1,000 catch-up contribution for those aged 50 and older, making the total $7,500.

Income Limits

The ability to contribute to a Roth IRA may be limited by the individual’s income. For 2024, the ability to make Roth IRA contributions begins to phase out for single filers with modified adjusted gross incomes (MAGIs) over $138,000 and is completely phased out at $153,000. For married couples filing jointly, the phase-out range starts at $218,000 and ends at $228,000.

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Contribution Limits for Multiple Accounts

The contribution limits apply to the total amount contributed to all IRA accounts combined. For example, if an individual has both a Traditional IRA and a Roth IRA, the combined total contributions to both accounts cannot exceed the annual limit.

Excess Contributions

If an individual contributes more than the allowed limit, the excess amount is subject to a 6% penalty per year until it is corrected. Excess contributions can be removed from the IRA, but they must be done before the tax filing deadline to avoid further penalties.

Employer-Sponsored Plans

Separate contribution limits apply to employer-sponsored retirement plans, such as 401(k) plans. These limits do not affect the IRA contribution limits but are important for individuals who participate in both types of plans.

Conclusion

IRA contribution limits set by the IRS determine the maximum amount individuals can contribute to their IRAs each year. For 2024, the limit is $6,500, with an additional $1,000 catch-up contribution allowed for those aged 50 and older. Income limits may affect Roth IRA contributions, and excess contributions are subject to penalties. Understanding these limits helps individuals effectively plan their retirement savings and avoid unnecessary penalties.

 

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