Every year, you're allowed to make contributions to an individual retirement account, and traditional IRAs are a great way to let your retirement savings grow without any taxes coming due until you take withdrawals from the account. Yet there's a limit to how much you can put into an IRA every year.
The limit on traditional IRA contributions for the 2018 tax year will be $5,500 for those younger than age 50, and $6,500 for those who are 50 or older. That's the same limit that's been in place for five years. If you make less than that amount from earned income from a job or self-employment, then your contribution is limited to your earned income. As you'll see below, those who are looking to deduct their traditional IRA contributions also have income limits to keep in mind.
When can you make a 2018 IRA contribution?
You can first start making contributions to an IRA that will count toward your 2018 tax-year limit on Jan. 1, 2018. However, you get an extra 3 1/2 months into the following year to use up each year's contributions. That means you can still keep making 2018 tax-year contributions until April 15, 2019.
Similarly, if you make contributions early in 2018, you should consider which tax year to pick. You have until mid-April 2018 to make a 2017 tax-year contribution, and that would let you take any deduction on your 2017 return rather than having to wait until the following tax season. If you've already made the maximum contribution for 2017, you'll want to count the subsequent contribution toward your 2018 limit.
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High income can reduce deductible contributions
In general, you can deduct traditional IRA contributions on your tax return. However, if you or your spouse is covered by a retirement plan at work, such as a 401(k), then there are income limits above which all, or part, of your contribution won't be tax-deductible.
If you are covered by a plan at work, the following limits apply:
|
For this filing status: |
Contributions are reduced if income is above this amount: |
Contributions are not available if income exceeds this amount: |
|---|---|---|
|
Single, head of household, or married filing separately IF you didn't live with your spouse during the year |
$63,000 |
$73,000 |
|
Married filing jointly, or qualifying widow or widower |
$101,000 |
$121,000 |
|
Married filing separately IF you lived with your spouse at any point during the year |
$0 |
$10,000 |
Data source: IRS.
If your spouse is covered by an employer plan but you aren't, then these higher limits are the ones to follow:
|
For this filing status: |
Contributions are reduced if income is above this amount: |
Contributions are not available if income exceeds this amount: |
|---|---|---|
|
Married filing jointly |
$189,000 |
$199,000 |
|
Married filing separately IF you lived with your spouse at any point during the year |
$0 |
$10,000 |
Data source: IRS.
However, the important thing to understand is that these income limits don't affect your ability to contribute the full $5,500 or $6,500, depending on your age. They only affect whether you can deduct those contributions. Any reduction in deductibility means that you'll be making a nondeductible IRA contribution with after-tax dollars. The after-tax money you put into a traditional IRA doesn't get taxed when you withdraw it in retirement, but the earnings on that money is subject to tax.
How traditional IRAs work with Roth IRAs
Finally, note that the limitations on making Roth IRA contributions have different rules which you need to be aware of. Typically, you can divide your maximum contribution between Roth and traditional IRAs as long as the total is less than the applicable limit. Some additional restrictions apply to Roth IRA contributions, but again, you can always make traditional IRA contributions, even if some of them might not be eligible for a tax deduction.
Knowing the 2018 IRA contribution limits will help you plan your retirement savings for the coming year more effectively. That way, you'll be ahead of the game and on track toward a prosperous and financially secure retirement.
