Contribution Limits and Catch-Up Contributions

For 2023, the annual contribution limit for Traditional and Roth IRAs is $6,500. Individuals aged 50 and older are eligible for a catch-up contribution of an additional $1,000, raising their limit to $7,500. These limits are periodically adjusted for inflation; for example, in 2024, the contribution limits increase to $7,000 and $8,000 respectively for those under and over 50. Contributions should be made with caution to avoid exceeding these thresholds, as excess contributions can incur penalties.

Tax Deductibility and Income Phase-Outs

The ability to deduct contributions to a Traditional IRA on personal income taxes can be restricted by income limits. If an individual or their spouse is covered by a workplace retirement plan, the deduction may be phased out at certain income levels. For instance, in 2023, for single filers, the phase-out begins at $68,000 and ends at $78,000 of modified adjusted gross income. Married filers have different phase-out ranges depending on whether the IRA contributor is covered by a workplace plan.

Roth IRAs, while providing tax-free growth, do not allow for tax-deductible contributions. Instead, they have income limits for eligibility. If a taxpayer’s income exceeds these limits, they cannot directly contribute to a Roth IRA. For 2023, the ability to contribute to a Roth IRA begins to phase out at $129,000 for single taxpayers and $204,000 for married couples filing jointly, with the phase-out completing at $144,000 and $214,000 respectively.

Investing through Your IRA

When considering an Individual Retirement Account, knowing how to invest within it is crucial. The right investment mix and understanding the associated fees can greatly impact one’s retirement savings.