Even if we wanted to contribute unlimited amounts to our retirement accounts, the IRS wouldn’t let us. In return for the tax breaks and tax-advantaged savings, it sets annual contribution limits for the Roth IRA, the Traditional IRA and the 401(k). Let’s take a closer look at the terms—and also what to do if you contribute too much.

Types of Contributions

The allowable amount you can contribute to a retirement account depends on two factors: your age and your income. In addition, there are two different types of contributions allowed with each plan. The first, which applies to most investors, is a “regular contribution.” The second is a “catch-up contribution.” Higher than the regular, it is available to those who are 50 years old or more. Since the time frame these investors have to save for retirement—and for their assets to grow—is shorter, they’re allowed to set aside a greater sum of money each year, in the hope their investments will “catch up.” Congress wrote the law anticipating that Americans would be well behind in their retirement planning, so they allow us to set aside even more money each year if we’re nearing retirement age.

Roth IRA Annual Contribution Limits

For the average American, the Roth IRA is a great choice for a retirement account. In 2018, the contribution limit is $5,500 per year, plus $1,000 in catch-up contributions if you’re age 50 or older (2019 limits are $6,000, or $7,000 for those 50 and over).

However, for some Americans the math can get a bit tricky. It has to do with their household income.

If you are married filing jointly and your modified adjusted gross income is more than $199,00 per year ($203,000 in 2019), or if you’re single and it’s over $135,000 ($137,000 in 2019), the government won’t allow you to contribute a single penny to a Roth IRA. Married joint filers with a MAGI of $189,000 to $199,000 per year ($193,000 to $203,000 in 2019) and single filers with a MAGI of $120,000 to $135,000 ($122,000 and $137,000 in 2019) are allowed to contribute, but at a reduced amount. The IRS has a worksheet to walk you through whether or not you can contribute.

Traditional IRA Annual Contribution Limits

For Traditional IRAs, the dollar amounts are the same. You can contribute $5,500 now ($6,000 in 2019) plus $1,000 in catch-up contributions (for those age 50 and up). In this case, it’s regardless of your income (assuming your income is at least the amount you contribute).

For Traditional IRA filers, the limits have to do with how much of that contribution can be deducted from their income tax. Remember, a Traditional IRA (unlike a Roth) is funded with pre-tax dollars, so contributors can usually write off the contribution the year they make it. (If you can’t deduct your contribution the Traditional IRA becomes a lot less attractive, although it does still allow the income in the account to grow tax free until retirement.)

Your income, and whether you (or your spouse) is covered by a retirement plan at work, also will affect your ability to deduct Traditional IRA contributions.

If you are single and have no workplace plan (or married and neither of you has one), then you can fully deduct your contribution, regardless of your income. However, if you don’t have a plan at work but your spouse does, if your MAGI is $189,000 or less ($193,000 in 2019) and your filing status is married filing jointly, you can deduct the full amount (it phases out above $199,000 in 2018, or $203,000 in 2019). Same as the 2018 and 2019 Roth IRA figures.

If you are covered by a workplace plan, the numbers change. If you are married filing jointly and you collectively make $101,000 or less per year ($103,000 in 2019), then you can take the full deduction. If you make more than $101,000 and up to $121,000 (the amounts are $103,000 and $123,000 in 2019), you can take a partial deduction. Above $121,000 you can’t deduct anything ($123,000 in 2019). Singles can take a full deduction if they make $63,000 or less (in 2019, it’s $64,000 or less); a partial deduction if they make more than $63,000 but less than $73,000 (those amounts are $64,000 and $74,000 in 2019); and nothing if they make anything more than $73,000 ($74,000 in 2019).

More Details on IRA Contributions

A note about Roth and Traditional IRA contributions: The limit is per taxpayer, not per account. That means you cannot contribute $5,500 to a Roth IRA and $5,500 to a Traditional IRA in 2018 or $6,000 to each in 2019. Rather, you can contribute the total amount, split across the different IRAs as you see fit. In 2019, for example, you could contribute $3,000 to a Roth IRA, and $3,000 to a Traditional IRA, or vice versa, as long as it doesn’t exceed the annual max. Note that married couples can also contribute to a spousal IRA for a non-working spouse in the same amounts, as long as the working spouse earns enough income to cover both amounts.

If you are looking for additional information on contribution limits or need to run the math to see whether or not you’re allowed to contribute to a Roth IRA, head for the source: the IRS. The go-to place on its website, which you can download, is Publication 590-A. It walks you through all of the scenarios with both Traditional IRAs and Roth IRAs.

401(k) Annual Contribution Limit

The annual contribution limit for 401(k) plans is by far the easiest to understand. There are only two categories: whether or not you are 50 years old. If you are under age 50, you can contribute $18,500 annually in 2018 ($19,000 in 2019). Period. No fancy math involving your modified adjusted gross income needed.

If you are age 50 or older, you can contribute the same $18,500 or $19,000, depending on the year, plus an additional $6,000 in catch up contributions. While this is the easiest of the three plans to understand it doesn’t automatically make it the best plan for your retirement goals.

Changing Your Roth IRA Contribution

There are potentially serious repercussions if you invest more than the allowed $5,500/$6,500 ($6,000/$7,000 in 2019) in a Roth IRA account, even inadvertently. You will be penalized with a 6% excise tax on the amount over your contribution limits. Happily, there are ways to change your investment allocation that can help you avoid paying penalties.

How To Reverse Excess Contributions

If you realize that you have contributed too much money to a Roth IRA or a combination of several Roth IRA accounts, there are several ways that you can reverse the excess contributions. But you must hurry, because there are strict deadlines that you have to meet in order not to be penalized by the government.

The best approach: Withdraw that money within the same year before you file your income tax return. The IRS treats any money that you take out within that deadline as money that was never contributed to a Roth IRA in the first place.

Any earnings that your excess contributions earned must also be withdrawn from your Roth IRA account in that same year as well. There are other things that you can do, such as recharacterize the extra amount into a Traditional IRA contribution, or apply the excess to a future tax filing year (though this may not totally alleviate the penalty).

Which Contributions Are Not Counted in the Limit?

While there are limits to the amount of money you can contribute in a single year to a Roth IRA, there are also exclusions that are not bound by the yearly cap. For example, the annual contribution limits do not include investments that are rolled over from another Roth IRA account or funds that are converted from a Traditional IRA. The same exemptions apply to funds that are rolled over from a qualified retirement plan, like a 401(k).


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