Table of Contents
Table of Contents
IRA Eligibility and Contribution Limits
Spousal IRAs
What If You Contribute Too Much?
- Retirement Planning
- 401(k)
The rules you need to know—plus a pitfall you'll want to avoid
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Updated March 11, 2024
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Do you have a 401(k) plan through work? You can still contribute to aRoth IRA (individual retirement account) and/or traditional IRA as long as youmeet the IRA's eligibility requirements.
You might not be able to take a tax deduction for your traditional IRA contributions if you also have a 401(k), but that willnotaffect the amount you are allowed to contribute. In 2023, you can contribute up to $6,500, or $7,500 with a catch-up contribution for those 50 and over. In 2024, those amounts go up to $7,000 and $8,000.
It usually makes sense to contribute enough to your 401(k) account to get the maximum matching contribution from your employer. But adding an IRA to your retirement mix after that can provide you with more investment options and possibly lower fees than your 401(k) charges. A Roth IRA will also give you a source of tax-free income in retirement. Here are the rules you'll need to know.
Key Takeaways
- Having a 401(k) account at work doesn't affect your eligibility to make IRA contributions.
- Your income determines whether your traditional IRA contributions are deductible.
- The amount of money you can contribute to a Roth IRA depends on your income.
- Spousal IRAs allow you to contribute when your spouse works even if you don't have any earned income yourself.
- The Internal Revenue Service imposes a 6% excise tax if you make excess contributions to your IRA.
IRA Eligibility and Contribution Limits
The contribution limits for both traditional and Roth IRAs are $6,000 per year, plus a $1,000 catch-up contribution for those 50 and older, for tax year and 2022. In 2023, the limits are $6,500 for those under age 50 and $7,500 for those ages 50 and up.
You can split your contributions between different types of IRAs, for example by having both a traditional and a Roth IRA. But your total contribution cannot be higher than the limit for that year. Traditional and Roth IRAs also have some different rules regarding your contributions.
Traditional IRAs
Contributions to a traditional IRA are often tax-deductible. But if you are covered bya 401(k) or any other employer-sponsored plan, your modified adjusted gross income (MAGI) will determine how much of your contribution you can deduct, if any.
The following tables break it down:
| Deductibility of IRA Contributions If You Also Have an Employer Plan for 2023 | ||||
|---|---|---|---|---|
| Tax-filing status | Income to deduct full contribution | Income for partial deduction | Above this income, no deduction | Contribution limit |
| Single | Less than$73,000 | $73,000 to $83,000 | More than $83,000 | $6,500 + $1,000 more if you're 50+ |
| Married, with your own 401(k) | Less than $116,000 | $116,000 to $136,000 | More than $136,000 | $6,500 each + $1,000 more if you're50+ |
| Married, spouse has a 401(k) | Less than$218,000 | $218,000 to $228,000 | More than $228,000 | $6,500 each + $1,000 more if you're50+ |
| Married with own 401(k), filing own return | $0 | $0 to $10,000 | More than $10,000 | $6,500 + $1,000 more if you're50+ |
| Deductibility of IRA Contributions If You Also Have an Employer Plan for 2024 | ||||
|---|---|---|---|---|
| Tax-filing status | Income to deduct full contribution | Income for partial deduction | Above this income, no deduction | Contribution limit |
| Single | Less than$77,000 | $77,000 to $87,000 | More than $87,000 | $7,000 + $1,000 more if you're 50+ |
| Married, with your own 401(k) | Less than $123,000 | $123,000 to $143,000 | More than $143,000 | $7,000 each + $1,000 more if you're50+ |
| Married, spouse has a 401(k) | Less than$230,000 | $230,000 to $240,000 | More than $240,000 | $7,000 each + $1,000 more if you're50+ |
| Married with own 401(k), filing own return | $0 | $0 to $10,000 | More than $10,000 | $7,000 + $1,000 more if you're50+ |
IRS Publication 590-A explains how to calculate your deductible contribution if either you or your spouse is covered by a 401(k) plan.
Even if you don't qualify for a deductible contribution, you can still benefit from the tax-deferred investment growth in an IRA by making a nondeductible contribution. If you do that, you will need to file IRS Form 8606 with your tax return for the year.
Roth IRAs
Roth IRAs provide no upfront tax benefit, and it doesn't matter whether you have an employer plan. How much you can contribute, or whether you can contribute at all, is based on your tax-filing status and your income for the year.
This table shows the current income thresholds:
| Roth IRA Contributions for 2023 | ||||
|---|---|---|---|---|
| Tax-filing status | Income for full contribution | Income for partial contribution | No contribution allowed | Contribution limit |
| Single | Less than$138,000 | $138,000 to $153,000 | More than $153,000 | $6,500 + $1,000 more if you're 50+ |
| Married, filing jointly | Less than $218,000 | $218,000 to $228,000 | More than $228,000 | $6,500 + $1,000 more if you're 50+ |
| Married, filing separately | $0 | $0 to $10,000 | More than $10,000 | $6,500 + $1,000 more if you're50+ |
| Roth IRA Contributions for 2024 | ||||
|---|---|---|---|---|
| Tax-filing status | Income for full contribution | Income for partial contribution | No contribution allowed | Contribution limit |
| Single | Less than$146,000 | $146,000 to $161,000 | More than $161,000 | $7,000 + $1,000 more if you're 50+ |
| Married, filing jointly | Less than $230,000 | $230,000 to $240,000 | More than $240,000 | $7,000 each + $1,000 more if you're50+ |
| Married, filing separately | $0 | $0 to $10,000 | More than $10,000 | $7,000 + $1,000 more if you're50+ |
Spousal IRAs
You must have earned income to contribute to an IRA. However, there's an exception for married couples where only one spouse works outside the home. That's aspousal IRA. It allows the employed spouse to contribute to an IRA of a nonworking spouse and as much as double the family's retirement savings. You can open a spousal IRA as either a traditional or a Roth account.
The total of your combined contributions in a spousal IRA can’t exceed the taxable compensation reported on a joint tax return.
What If You Contribute Too Much?
If you discover that you contributed more to your IRA than you're allowed, you'll want to withdraw the amount of your overcontribution—and fast. Failure to do so in a timely way could leave you liable for a 6% excise tax every year on the amount that exceeds the limit.
The penalty is waived if you withdraw the money before you file your taxes for the year in which the contribution was made. You also need to calculate what your excess contributions earned while they were in the IRA and withdraw that amount from the account, as well.
The investment gain must also be included in your gross income for the year and taxed accordingly. What's more, if you are under 59½, you'll owe a 10% early withdrawal penalty on that amount.
Article Sources
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Internal Revenue Service. “Retirement Topics - IRA Contribution Limits.”
Internal Revenue Service. “401(k) Limit Increases to $23,000 for 2024, IRA Limit Rises to $7,000.”
Internal Revenue Service. “IRA FAQs.”
Internal Revenue Service. “Roth IRAs.”
Internal Revenue Service. “Amount of Roth IRA Contributions That You Can Make for 2023.”
Internal Revenue Service. “Publication 590-A: Contributions to Individual Retirement Arrangements (IRAs).” Page 31.
Internal Revenue Service. “401(k) Limit Increases to $23,000 for 2024, IRA Limit Rises to $7,000.”
Internal Revenue Service. “About Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs).”
Internal Revenue Service. “2022 Instructions for Form 8606."
Internal Revenue Service. “Publication 590-A: Contributions to Individual Retirement Arrangements (IRAs).” Pages 9-10.
Internal Revenue Service. “Publication 590-A: Contributions to Individual Retirement Arrangements (IRAs).” Page 34.
Internal Revenue Service. “What If I Withdraw Money From My IRA?”
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