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Contribution limits differ for IRAs and 401(k)s

Quick Summary

  • The IRS sets annual contribution limits for IRAs and 401(k)s.
  • Your age and income determine how much you can contribute to a retirement account.
  • Contribution limits are per taxpayer—not per account.

Even if we wanted to contribute unlimited amounts to our retirement accounts, the Internal Revenue Service (IRS) wouldn’t let us. In return for the tax breaks and tax-advantaged savings, the IRS sets annual contribution limits for Roth IRAs, traditional IRAs and 401(k)s. Here’s what you need to know.

Types of Contributions

The allowable amount you can contribute to a retirement account depends on two factors: your age and your income. In addition, each plan has two different types of contributions. The first, which applies to most investors, is a “regular contribution.”

The second is a “catch-up contribution,” an extra amount available to people who are at least 50 years old. These investors may have less time to save for retirement, and less time for their assets to grow. So they can stash away more money each year, in the hope their investments will “catch up.”

Roth IRA Annual Contribution Limits

For the average American, the Roth IRA is a great choice for a retirement account. In 2019, the contribution limit is $6,000, plus a $1,000 catch-up contribution (for a total of $7,000) if you’re age 50 and over.

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

You can contribute the full amount if you’re married filing jointly and your modified adjusted gross income (MAGI) is less than $193,000, or if you’re single and it’s less than $122,000.

Married joint filers with a MAGI of $193,000 to $203,000 per year, and single filers with a MAGI of $122,000 to $137,000, can contribute, but at a reduced amount. The IRS has a worksheet to walk you through whether or not you can contribute.

If you’re married filing jointly and your MAGI is more than $203,000, or if you’re single and it’s over $137,000, you can’t contribute a single penny to a Roth IRA.

Here’s a summary of the current Roth IRA income limits for 2019:

2019 Roth IRA Income and Contribution Limits
Filing Status Income Limit (MAGI) Contribution Limit
Married filing jointly Less than $193,000 Up to the limit: $6,000 (or $7,000 if you’re age 50 and up)
$193,000 to $202,999 A reduced amount
$203,000 or more Zero (learn more about a “Backdoor Roth IRA”)
Married filing separately Less than $10,000 A reduced amount
$10,000 or more Zero
Single Less than $122,000 Up to the limit: $6,000 (or $7,000 if you’re age 50 and up)
$122,000 to $136,999 A reduced amount
$137,000 or more Zero (learn more about a “Backdoor Roth IRA”)

 

Traditional IRA Annual Contribution Limits

For traditional IRAs, the dollar amounts are the same. You can contribute $6,000 a year, plus a $1,000 catch-up contribution if you’re age 50 and up.

Unlike Roth IRAs, your income doesn’t affect the amount you can contribute to a traditional IRA. Your income just has to match or exceed the amount you contribute.

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

Your income and whether you (or your spouse) have a retirement plan at work determine if you can deduct traditional IRA contributions.

If you’re single and have no workplace plan (or you’re 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, you can deduct the full amount if you’re married filing jointly and your MAGI is $193,000 or less. It phases out above $203,000.

The numbers change if you have a workplace plan. Married couples who file jointly can take the full deduction if they make less than $103,000 for 2019. If you make more than $103,000 and up to $123,000, you can take a partial deduction. Above $123,000, and you can’t deduct anything.

Single filers can take a full deduction if they make $64,000 or less for 2019, a partial deduction if they make more than $64,000 but less than $74,000, and nothing if they make anything more than $74,000.

More Details on IRA Contributions

A note about Roth and traditional IRA contributions: The limit is per taxpayer, not per account. That means you can’t contribute $6,000 to a Roth IRA and $6,000 to a traditional IRA in 2019. Instead, 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’re 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 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’re 50 years old. If you’re under age 50, you can contribute $19,000 a year in 2019. Period. No fancy math involving your modified adjusted gross income needed.

If you’re age 50 or older, you can contribute the same $19,000, plus an additional $6,000 catch-up contribution. 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 $6,000/$7,000 in a Roth IRA account. You’ll be penalized with a 6% excise tax on any amount over your contribution limits. Happily, there are ways to change your investment allocation, and that can help you avoid paying penalties.

How To Reverse Excess Contributions

If you realize you’ve contributed too much money to a Roth IRA or a combination of several Roth IRA accounts, there are several ways you can reverse the excess contributions. But you must act quickly: There are strict deadlines that you have to meet if you want to avoid penalties.

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 from your excess contributions must also be withdrawn from your Roth IRA account in that same year as well.

If you find the mistake after you’ve filed income taxes for the year, you can remove the excess contribution within six months and file an amended return by Oct. 15.

Alternatively, you can reduce the following year’s contribution by the excess amount. For example, if you contributed $8,000 by mistake one year, you can reduce your contribution by $2,000 (the excess amount) the next year. If you carry forward the excess like this, however, you’ll be on the hook for that 6% penalty until the excess is absorbed.

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 don’t 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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