Terms of Use

An IRA is an Individual Retirement Account that provides several tax benefits.  IRA accounts can be comprised of fixed income instruments, such as CDs/share certificates, bonds, stocks and mutual funds, to name just a few options.

A Traditional IRA enables individuals to save money in a tax-deferred account. What that means is that the earnings from your IRA account will not be taxed until you begin taking money out of the account.

Traditional IRA Snapshot

  • Contributions:  Tax-deductible
  • Earnings:  Any earnings grow federal income tax-deferred
  • Withdrawals:  10% early withdrawal penalty may apply for withdrawals taken prior to age 59-1/2 if no exceptions apply.  Penalty-free withdrawals for first home purchase and certain college expenses.  Minimum required distributions starting at age 72

Each year, regardless of your income, you can invest up to the maximum annual contribution limit or 100% of your earned income, whichever is less.

Unlike earnings on IRA accounts -- which are not taxed until withdrawn -- the IRA contribution itself may or may not be deductible from your taxable income. Tax deductibility of contributions depends on your income and if you or your spouse participate in a workplace retirement plan.

If neither you nor your spouse is an "active participant" in an employer-sponsored retirement plan, you both may deduct your entire contribution, up to your applicable limit as established by the IRS. The W-2 Form you receive each year from your employer indicates whether you're considered an active participant or not. Check with your employer if you're unclear about your status.

If you or your spouse participates in an employer-sponsored retirement plan, you may deduct your contribution only if your adjusted gross income (AGI) falls within certain ranges. 

Traditional IRA Eligibility Rules

Previously you could not make contributions to a Traditional IRA beyond age of 70-1/2, but that has changed with the passage of the Secure Act. You are no longer restricted from making contributions to a Traditional IRA.  

In order to contribute to a traditional IRA, you must have some form of compensation. "Compensation" includes wages, salaries, bonuses, and commissions. Compensation does not include deferred compensation or payments such as interest income and stock dividends that you received during the year.

Traditional IRA Contribution Limits

How much you can contribute may change each tax year.    

In 2021

Those age 49 and under can contribute 100% of compensation up to $6,000. 

Those age 50 and older can make an additional catch-up contribution of $1,000.  

The limit is per person, not account.  You can have more than one IRA account, but your contributions cannot exceed the limit. However, even if you cannot deduct your IRA contribution, you still receive the benefit of tax-deferred growth.

What are the income limits for contributions to a Traditional IRA?

Anyone can contribute to a Traditional IRA up to the annual limit regardless of income.  The ability to take a tax deduction for your contributions is subject to income limitations. 

If you and your spouse aren't eligible to participate in an employer-sponsored retirement plan, such as a 401(k) or Pension Plan, your income doesn't matter.  You can deduct your entire Traditional IRA contribution up to the annual limit.

If you or your spouse participates in an employer-sponsored retirement plan, then your income is limited when it comes to being eligible to make a deductible contribution to a Traditional IRA.  Your modified adjusted gross income (MAGI) must be less than a stated amount, depending on tax-filing status.

For 2021, the MAGI phase-out ranges are:

  • $66,000 - $76,000 (single)

  • $105,000 - $125,000 (married, filing jointly)

  • $0 - $10,000 (married, filing separately)

If you don't participate in an employer-sponsored retirement plan but your spouse does, then the deduction is phased out for joint MAGI between $198,000- $208,000 in 2021.