What Are the Income Limits for a Traditional IRA?
While anyone can contribute to a traditional IRA regardless of their income, income limits may apply for certain contributions. Here are the income limits that apply for a traditional IRA.
An IRA is a tax-deferred retirement account that retirement savers use to stash away part of their paycheck for retirement. Usually, you can contribute to a traditional IRA up to the annual contribution limit, and these funds will grow tax-deferred over your working years. However, income limits may apply to tax-deductible contributions.
There are no income limits for contributing to a traditional IRA, but there are income limits for tax-deductible contributions. For 2022, single taxpayers get a full deduction for incomes below $68,000, partial deduction if the income exceeds $68,000, and zero deduction for incomes above 78,000. Similarly, married couples filing jointly get a full deduction for incomes below $109,000, a partial deduction for incomes above 109,000, and zero deductions for incomes above $129,000. Married couples filing separately are allowed a partial deduction for incomes up to $10,000.
Is there an income limit for a traditional IRA?
Any person with earned income can open a traditional IRA account and make contributions to the account, regardless of their income. However, there are income limits for Roth IRA, and high-income earners who exceed the IRA income limits cannot contribute to the account. For 2022, single filers cannot contribute to a Roth IRA if the gross income is $140,000 or more, while married filers filing jointly have a limit of $208,000.
However, your income may limit your IRA deductible contributions if you or your spouse have a 401(k) plan or other workplace retirement plan. While you can make non-deductible deductions to an IRA regardless of your income, income limits apply if you or your spouse also contribute to a workplace retirement place like 401(k) or 403(b).
Earned income and IRA contributions
The IRS requires that retirement savers can only contribute earned income to an IRA. You can get earned income if you work for someone who pays you, or if you run a business or farm. Examples of earned income may include salary, wages, bonuses, tips, self-employment income, etc. However, some incomes such as rental income, alimony, interest and dividend income, and unemployment benefits do not count as earned income.
For 2021 and 2021, you can contribute up to $6,000 to an IRA, or $7,000 if you are above 50. Since the IRS requires that you can only contribute earned income, it means you can only contribute up to the earned income, even if it is lower than the annual contribution limit. For example, if your earned income is $5000, you can only contribute a maximum of $5000 to your IRA.
IRA tax deduction limit
While anyone can contribute to an IRA, there are income limits for deductible contributions. This means that, if you want to claim a deduction on your IRA contributions, your income must be below the IRS limits.
The tax deduction limits are as follows:
Single or head of household
IRA deductions start to phase out if your MAGI is between $66,000 and $76,000 in 2021. These limits increase to $68,000 and $78,000 in 2022. For 2022, it means you will have a partial deduction if your income is $68,000 or higher, and if it exceeds $78,000, you cannot claim a deduction.
Married filing jointly
IRA deductions start to phase out if the annual income falls between $105,000 and $125,000 in 2021, or $109,000 and $129,000 in 2022. If your income exceeds $129,000, you won’t be allowed to claim a tax deduction on your contributions.
Married taxpayers filing separately
If you are married filing separately, you only get a partial deduction for MAGI up to $10,000 in 2021 and 2022. If the income exceeds $10,000, you cannot claim a tax deduction.
Spouse has a workplace retirement plan
If your spouse has a workplace retirement plan, there is a limit on the tax-deductible contributions you can make to your traditional IRA. If you are married filing jointly, the tax deductions begin to phase out from $198,000 to $208,000 of adjusted gross income in 2021, or $204,000 to $214,000 in 2022.
If you are married filing separately, the tax deductions decline steeply. You cannot claim a tax deduction if your income is $10,000 or more in 2021 and 2022.
Income Limits for Other Types of IRAs
If your income is higher than the IRS income limits for Roth IRA, you cannot contribute directly to a Roth IRA.
If your income prevents you from contributing directly to a Roth IRA, you can still enjoy the tax savings of a Roth IRA by opting for a Roth rollover. You will pay tax when you rollover from a pre-tax IRA to a post-tax IRA, but you will benefit from tax-free income in retirement.
If you have a SEP IRA or SIMPLE IRA, you can contribute to these accounts regardless of the amount of income you earned. As long you meet the eligibility requirements to open and contribute to these IRAs, you can contribute up to the annual contribution limit.