Individual Retirement Accounts IRA
Individual Retirement Accounts IRA Allows You to Save Money for Retirement with tax-advantaged. Save for retirement with tax-free growth or tax-deferred.
Individual Retirement Accounts IRA That Fits Your Retirement Needs is a deductible tax investing too used to earmark funds for retirement savings. Talk to an accountant before setting up.
Individual Retirement Accounts IRA allows you to make tax-deferred investments to provide financial security when you retire.
Assess your financial needs
- Where am I, financially? The Roadmap to Saving and Investing (U.S. Securities and Exchange Commission) can help you evaluate your financial situation.
- What will my Social Security retirement benefit be? Calculate what you can expect as your Social Security retirement benefit.
- How much will I need when I retire? Use the calculators available on the Choose to Save page sponsored by the American Savings Education Council (ASEC) to estimate what you will need.
- The Department of Labor website also has retirement planning information.
Set up your Individual Retirement Accounts IRA
What kind of IRA best suits my needs? Traditional IRA or Roth IRA?
- Traditional IRA Roth IRA comparison chart
- You can set up an IRA with a:
- bank or other financial institution
- life insurance company
- mutual fund
- Investing your IRA assets
The IRS can’t advise about specific investments. See The IRS Does Not Approve Individual Retirement Accounts IRA (Publication 3125).
Investing and Diversification resources from the Department of Labor can get you started on investing in your future.
For 2020 and 2019, the total contributions you make each year to all of your traditional IRAs and Roth IRAs can’t be more than:
- $6,000 ($7,000 if you’re age 50 or older), or
- If less, your taxable compensation for the year
For 2018, 2017, 2016, and 2015, the total Individual Retirement Accounts IRA you make each year to all of your traditional IRAs and Roth IRAs can’t be more than:
- $5,500 ($6,500 if you’re age 50 or older), or
- If less, your taxable compensation for the year
The Individual Retirement Accounts IRA contribution limit does not apply to:
- Rollover contributions
- Qualified reservist repayments
Deducting your IRA contribution
Your traditional IRA contributions may be tax-deductible. The deduction may be limited if you or your spouse is covered by a retirement plan at work and your income exceeds certain levels.
Roth IRA contribution limit
In addition to the general contribution limit that applies to both Roth and traditional IRAs, your Roth Individual Retirement Accounts IRA contribution may be limited based on your filing status and income.
- 2020 – Amount of Roth IRA Contributions You Can Make for 2020
- 2019 – Amount of Roth IRA Contributions You Can Make for 2019
IRA contributions after age 70½
For 2020 and later, there is no age limit on making regular contributions to traditional or Roth IRAs.
For 2019, if you’re 70 ½ or older, you can’t make a regular contribution to a traditional IRA. However, you can still contribute to a Roth IRA and make rollover contributions to a Roth or traditional IRA regardless of your age.
If you file a joint return, you may be able to contribute to an IRA even if you didn’t have taxable compensation as long as your spouse did. Each spouse can contribute up to the current limit; however, the total of your combined contributions can’t be more than the taxable compensation reported on your joint return. See the Kay Bailey Hutchison Spousal IRA Limit in Publication 590-A.
If neither spouse participated in a retirement plan at work, all of your contributions will be deductible.
Can I contribute to an IRA if I participate in a retirement plan at work?
You can contribute to a traditional or Roth IRA even if you participate in another retirement plan through your employer or business. However, you may not be able to deduct all of your traditional Individual Retirement Accounts IRAcontributions if you or your spouse participates in another retirement plan at work. Roth IRA contributions might be limited if your income exceeds a certain level.
- Danny, an unmarried college student earned $3,500 in 2019. Danny can contribute $3,500, the amount of his compensation, to his IRA for 2019. Danny’s grandmother can contribute on his behalf.
- John, age 42, has a traditional IRA and a Roth IRA. He can contribute a total of $6,000 to either one or both for 2020.
- Sarah, age 50, is married with no taxable compensation for 2019. She and her spouse, age 48, reported taxable compensation of $60,000 on their 2019 joint return. Sarah may contribute $7,000 to her IRA for 2019 ($6,000 plus an additional $1,000 contribution for age 50 and over). Her spouse may also contribute $6,000 to an IRA for 2019.
Tax on excess IRA contributions
- An excess Individual Retirement Accounts IRA contribution occurs if you:
- Contribute more than the contribution limit.
- Make a regular IRA contribution for 2019, or earlier, to a traditional IRA at age 70½ or older.
- Make an improper rollover contribution to an IRA.
Excess contributions are taxed at 6% per year for each year the excess amounts remain in the IRA. The tax can’t be more than 6% of the combined value of all your IRAs as of the end of the tax year.
To avoid the 6% tax on excess contributions, you must withdraw:
The excess contributions from your IRA by the due date of your individual income tax return (including extensions); and any income earned on the excess contribution.
Individual Retirement Accounts IRA Deduction Limits
You may be able to claim a deduction on your federal income tax return for the amount you contributed to your IRA. See IRA Contribution Limits.
Roth IRA contributions aren’t deductible.
Retirement plan at work: Your deduction may be limited if you (or your spouse, if you are married) are covered by a retirement plan at work and your income exceeds certain levels.
No retirement plan at work: Your deduction is allowed in full if you (and your spouse, if you are married) aren’t covered by a retirement plan at work.
These charts show the income range in which your deduction may be disallowed if you or your spouse participates in a retirement plan at work:
IRA Deduction if You ARE Covered by a Retirement Plan at Work – 2020
IRA Deduction if You Are NOT Covered by a Retirement Plan at Work – 2020 (deduction is limited only if your spouse IS covered by a retirement plan)