IRA Contribution Limits
IRAs are an excellent way to save for retirement. But, to be able to deduct your contributions, you need to meet certain requirements. These include contribution limits and income eligibility.
A retirement savings account called an individual retirement arrangement (IRA) is one of several options that individuals have for saving money for the future. IRAs offer a number of tax advantages, including the ability to make tax deductible contributions and defer taxes on investment earnings until you retire. There are a few different types of IRAs, each with its unique set of rules and regulations. Some IRAs allow you to invest in individual stocks and bonds, while others focus on mutual funds or exchange-traded funds (ETFs). Each type of IRA has its own contribution limits, as well as its own rules for distributions.
Traditional IRAs are the most common type of IRA. You can contribute up to $6,500 a year into a traditional IRA in 2024 (or $7,500 if you are over 50). If you are married, you can contribute to a traditional IRA if your combined income does not exceed the contribution limit. You can also contribute to a Roth IRA with no income limit for deductible contributions. However, you can only contribute to a Roth IRA if your income is low enough.
What are IRA Contribution Limits for the Tax Year 2024?
Individual retirement accounts, known as IRAs, can offer tax benefits to those who save for their future. However, there are limits to the amount that can be contributed each year. These limits are based on a combination of factors including whether the person has a workplace retirement plan and their income level. For 2024, the annual contribution limit for traditional and Roth IRAs is $6,500, or $7,500 for those 50 and older. If you are over 50, you can also make additional “catch-up” contributions of $1,000. The contribution limits for SIMPLE IRAs and SEP IRAs, which are offered to small business owners and the self-employed, are higher than those for traditional IRAs.
If you or your spouse is covered by a workplace retirement plan, the ability to deduct your IRA contributions may be reduced or eliminated. For the 2024 tax year, the phase-out range for single and head-of-household filers covered by a workplace plan is $73,000 to $83,000, while the phase-out range for married couples filing jointly is $116,000 to $129,000. If your modified adjusted gross income (MAGI) is more than $218,000, you will not be able to contribute to a traditional IRA.
SEP IRA Contribution Limits 2024
While you can’t deduct your IRA contributions if you’re covered by a workplace retirement plan, you can still contribute to a Roth IRA. For the 2024 tax year, the contribution limit for individuals who are eligible to make a Roth IRA is $6,500 ($7,500 for those 50 and older). The contribution limit for SEP IRAs, which are offered by small businesses and the self-employed, is 25% of compensation, up to a cap of $330,000.
If you’re self-employed, you can use a SEP IRA or SIMPLE IRA to lower your taxes by saving for retirement. Unlike a traditional IRA, you can invest in a variety of assets with these accounts, including stocks and mutual funds. However, you should remember that withdrawals from these accounts are included in taxable income and may be subject to a 10% penalty if you take them before age 59 1/2. However, this penalty is waived if you’ve worked for at least two years and expect to work for at least another five years.
