The IRS sets annual contribution limits for traditional and Roth IRAs and adjusts them periodically to account for inflation. Understanding how these limits work, and what affects your eligibility, helps you plan contributions more effectively year to year.
Traditional and Roth IRA contribution limits
The contribution limits are the same for traditional and Roth IRAs, though the way they are funded differs. Traditional IRA contributions are made with pre-tax income, while Roth IRA contributions are made with after-tax income.
The IRS allows you to contribute up to a set amount per year, with a higher limit available for account holders age 50 and older. The contribution limit applies to your total IRA contributions across all accounts for the year, not per account. If you have two IRAs, your combined contributions cannot exceed the annual limit.
IRA and 401(k) contribution limits are separate, so you can contribute the maximum to both in the same year. Rollovers from a 401(k) or another IRA do not count toward your annual contribution limit.
See this year's Traditional and Roth IRA contribution limits on the IRS website.
Roth IRA income limits
Roth IRAs are subject to income-based contribution limits based on your modified adjusted gross income (MAGI). Depending on your filing status and income, you may be eligible to contribute the full amount, a reduced amount, or nothing at all in a given year.
Modified adjusted gross income is your gross income, including wages, business income, capital gains, dividends, and retirement distributions, minus certain deductions such as contributions to retirement accounts, student loan interest, and alimony payments.
Age and income considerations
Anyone with earned income can contribute to a traditional or Roth IRA. Your contribution cannot exceed the lesser of the annual limit or your taxable income for the year. Passive income generally does not count toward this threshold. If your taxable income for the year is lower than the annual limit, your maximum contribution is capped at what you earned.
The contribution deadline
Unlike 401(k) contributions, which must be made by December 31, IRA contributions for a given tax year can be made up until Tax Day of the following year. If you contribute between January 1 and Tax Day, you will typically need to designate which tax year the contribution applies to. Once designated, that selection generally cannot be changed, so it is worth confirming before submitting.
Excess contributions
Keeping track of your total IRA contributions across all accounts in a given year is your responsibility. If you contribute more than the annual limit, the IRS charges a 6% penalty on the excess amount for each year it remains in the account. If this happens, contact your IRA custodian to discuss how to remove the excess contribution. Consulting a tax advisor is also advisable, particularly if the over-contribution spans multiple accounts or tax years.
Using your IRA to invest beyond public markets
With a self-directed IRA, those contributions can go toward alternative assets like private equity, venture capital, real estate, and private credit, rather than being limited to stocks and bonds. If you are considering that kind of diversification, you can open an Alto IRA and explore what is available on the Alto Marketplace.