Individual Retirement Accounts (IRAs) are a great option for those looking to save for the future. The most common IRAs are Traditional & Roth; both have a number of contribution limits and eligibility requirements.
Traditional IRA
- The annual contribution limits for 2021 and 2022 are $6,000, or $7,000 for taxpayers 50 or older regardless of whether the contribution is made to one IRA or multiple IRAs of the owner or whether it is all or partially non-deductible
- Contributions must be made from earned income such as wages or self-employment income and are generally limited to the lesser of the taxpayer’s taxable compensation or the annual contribution limit mentioned above.
- Married taxpayers filing a joint return may contribute to an IRA owned by the non-income earning spouse so long as total contributions of both spouses to IRAs do not exceed the contributing spouse’s earned income.
- 2021 deductible contributions are phased out based on income. For married filing jointly or qualifying widow(er), the phase-out is between $105k and $125k; for married filing separately who lived with his/her spouse at any time during the year, the phase-out is between $1k and $10k; while persons filing single, head of household, or married filing separately who didn’t live with his/her spouse at any time during the year will be phased-out between $66k and $76k. There is no phase-out when a taxpayer or couple, if married filing jointly, were not covered for any portion of the year by an employer-sponsored retirement plan.
- There are no age limits for making a contribution.
Roth IRA
- The annual contribution limits for 2021 and 2022 are $6,000, or $7,000 for taxpayers 50 or older regardless of whether the contribution is made to one IRA or multiple IRAs of the owner.
- Contributions must be made from earned income such as wages or self-employment income and are generally limited to the lesser of the taxpayer’s taxable compensation or the annual contribution limit mentioned above.
- Married taxpayers filing a joint return may contribute to an IRA owned by the non-income earning spouse so long as total contributions of both spouses to IRAs do not exceed the contributing spouse’s earned income.
- 2021 contributions to Roth IRAs are phased out for single, head of household, and married filing separately who didn’t live with his/her spouse at any time during the year, filers with income between $125k–$140k, married filing separately who did live with his/her spouse at any time during the year with income between $1k—$10,000, and for married filing jointly or qualifying widow(er) $198k–$208k.
- No deduction is allowed regardless of a taxpayer’s income level.
- There are no age limits for making a contribution.
If you haven’t made a contribution for 2021, it’s not too late. Contributions for 2021 Traditional and Roth IRAs may be made through April 18, 2022. Due to the Patriot’s Day holiday, this deadline is extended through April 19, 2022, for Maine and Massachusetts taxpayers.
To learn more about IRAs and the options that are available to you, please visit the IRS website at www.IRS.gov