Each year, the IRS announces individual retirement account (IRA) contribution limits, traditional IRA deduction income limits, and Roth IRA contribution income limits. Not only is there a maximum amount that Americans can contribute to their IRAs each year, but not everyone is eligible for both types of IRAs.

Here's a quick guide for the 2020 tax year that can help you figure out how much you'll be allowed to contribute.

The 2020 IRA contribution limit

While there are several inflation-related tax changes taking place in 2020, one thing that's staying the same is the IRA contribution limit. IRA owners are allowed to contribute a maximum of $6,000 to their accounts in 2020, with an additional $1,000 catch-up contribution allowed for savers who have already reached their 50th birthdays.

It's important to point out that the contribution limits are per person, not per account. In other words, you're allowed to contribute to more than one IRA in 2020, but your total contributions can't be more than $6,000 (or $7,000 if you're 50 or older).

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IRA minimum income requirement

The maximum income limitations for IRA contributions get the most attention, but before we get to those, it's important to point out that IRAs actually have a minimum income requirement, as well. Specifically, the IRA contribution limit is $6,000 or your total earned income for the year, whichever is lower.

Earned income includes your salary or wages from a job or income from a business in which you play an active role. If you don't have earned income, you can't contribute to an IRA.

One big exception exists for married couples. If one spouse doesn't work (say, they're a stay-at-home parent), the other spouse can contribute to IRAs for both of them, as long as their income justifies both contributions. This is known as a spousal IRA.

Traditional IRA-deduction limit

To be perfectly clear, anyone can contribute to a traditional IRA. However, not everyone can take advantage of the tax deduction for traditional IRA contributions, which is one of the biggest reasons to make a contribution to this type of account.

In the eyes of the IRS, there are three categories of people when it comes to traditional IRA deduction eligibility:

  1. You don't have access to an employer's plan at work (and neither does your spouse, if you're married).
  2. You have access to a retirement plan at work.
  3. You don't have access to an employer-sponsored retirement plan but your spouse does.

First, if you (and your spouse, if applicable) don't have access to an employer's retirement plan, there's no income limitation for you. No matter how much you earn, you can use the traditional IRA deduction.

Second, if you have a retirement plan at work such as a 401(k), your ability to take the traditional IRA deduction is subject to these income limitations for 2020:

Tax Filing Status

2020 Traditional IRA Full Deduction AGI Limit

Phase-Out Limit

Single or head of household

$65,000

$75,000

Married filing jointly

$104,000

$124,000

Married filing separately

$0

$10,000

Data Source: IRS. AGI = adjusted gross income.

So, if your adjusted gross income (AGI) is less than the full deduction limit for your tax filing status, you can deduct all of your traditional IRA contributions for the year. If your AGI is between the two limits, you're entitled to a partial traditional IRA deduction. Finally, if your AGI is more than the phase-out limit, you can't deduct traditional IRA contributions.

Third, if you don't have an employer's retirement plan at work but your spouse does, your ability to use the traditional IRA deduction is limited, but the income limits are more generous than if you had an employer-sponsored retirement plan yourself.

Tax Filing Status

2020 Traditional IRA Full Deduction AGI Limit

Phase-Out Limit

Married filing jointly

$196,000

$206,000

Married filing separately

$0

$10,000

Data Source: IRS.

Roth IRA contribution limits

Unlike with a traditional IRA, Roth IRA contributions are income-restricted for all Americans, even if they don't participate in an employer's retirement plan. For 2020, these limits are:

Tax Filing Status

2020 Roth IRA Full Contribution AGI Limit

Phase-Out Limit

Single or head of household

$124,000

$139,000

Married filing jointly

$196,000

$206,000

Married filing separately

$0

$10,000

Data Source: IRS.

Here's how to interpret this chart. If your adjusted gross income is less than or equal to the full contribution limit for your tax filing status, you can contribute to a Roth IRA up to the IRS annual maximum for your age. If your AGI falls between the full contribution limit and the phase-out limit, you can make a partial contribution. And finally, if your AGI is more than the phase-out limit, you can't contribute directly to a Roth IRA -- although you may have a way around this, which we'll discuss in the next section.

If you make too much, you have two options

If you exceed the IRA income limits, there are a couple of things you can do to still take advantage of this type of retirement account.

First, it's worth reiterating that anyone can contribute to a traditional IRA -- it's just a question of whether your contributions will be deductible or not. Non-deductible IRA contributions aren't ideal and you're probably better off contributing more to your employer's retirement plan, especially if your goal is an immediate tax break.

Second, while there's an income limit to contribute directly to a Roth IRA, there's no income limit to convert a traditional IRA into a Roth. So if you earn too much to contribute to a Roth IRA, you can contribute to a traditional IRA and immediately convert the account to a Roth. This is known as a backdoor Roth IRA. While it's an extra step, it's a perfectly legal way to take advantage of the tax-free retirement income a Roth IRA can provide.