Individual retirement accounts (IRAs) provide tax benefits for retirement, but there are annual contribution limits.

The combined annual contribution limit in 2020 for a traditional and Roth IRA is $6,000 for those under age 50 and $7,000 for those 50 and over, as they are eligible for catch-up contributions. The annual contribution limit for SIMPLE IRAs and SEP IRAs, which are used by small businesses and the self-employed, are higher. 

Here's what you need to know about contribution limits for different types of IRAs. 

Street sign reading "IRA" above an arrow.

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Contribution limits for traditional and Roth IRAs

Traditional IRAs allow tax-deductible contributions, but withdrawals are taxed. Roth IRAs allow after-tax contributions only, but money can be withdrawn tax-free. There is an aggregate limit on the amount you can contribute to a traditional and Roth IRA. For 2020, it is $6,000 for those under 50, while catch-up contributions bring the limit up to $7,000 for those 50 and over. 

A nonworking spouse who files as married filing jointly also has the option to contribute to an IRA as long as their spouse has taxable income. Each spouse is allowed to contribute up to the current annual limit; however, total combined contributions cannot exceed the taxable compensation reported on the joint tax return. 

The IRS sets annual contribution limits for both traditional and Roth IRAs. The table below shows the aggregate contribution limits for these two accounts by tax year. 

Tax Year

Basic Contribution Limit/Nonworking Spouse Contribution Limit

Catch-Up Contribution
2010 $5,000 $1,000
2011 $5,000 $1,000
2012 $5,000 $1,000
2013 $5,500 $1,000
2014 $5,500 $1,000
2015 $5,500 $1,000
2016 $5,500 $1,000
2017 $5,500 $1,000
2018 $5,500 $1,000
2019 $6,000 $1,000
2020 $6,000 $1,000

Data source: Internal Revenue Service.

You are eligible to contribute to an IRA regardless of whether you also contribute to a 401(k), and 401(k) contributions do not affect limits on the IRA contributions listed above.

However, if either you or your spouse is covered by a workplace retirement plan, eligibility for deductible contributions to a traditional IRA begins to phase out at higher income levels. If your income is too high for you to make deductible contributions, you may still make nondeductible contributions up to the annual limit. Higher earners are, however, not eligible to make Roth contributions at all. 

SEP IRA contribution limits

SEP (Simplified Employee Pension) IRAs are created by employers, and self-employed individuals also have the option to create them. Only employers contribute to SEP IRAs, with all contributions made with pre-tax funds. 

Contributions are allowed up to the lesser of:

  • 25% of employee compensation
  • $57,000 for 2020 (up from $56,000 in 2019)

For self-employed workers, the 25% limit is based on net income. To calculate the maximum contribution, you must subtract any SEP IRA contribution you plan to make as well as the employer portion of payroll taxes from gross income. Usually you'll end up being able to contribute around 20% of gross income after doing this calculation. 

No catch-up contributions are permitted to a SEP IRA. However, contributions to your SEP IRA do not affect your ability to make regular contributions, catch-up contributions to a Roth IRA, or deductible contributions to a traditional IRA, as long as your income isn't too high for you to qualify. 

SIMPLE IRA contribution limits

SIMPLE IRAs can receive contributions from employees and employers. Contributions are made with pre-tax funds. 

Employees are allowed to make contributions out of their salaries of up to $13,500 in 2020 (up from $13,000 in 2019). Employees older then 50 are eligible to make catch-up contributions of up to $3,000 in 2020. This limit has been the same since 2016. 

Employee contributions are considered "elective deferrals," so they count toward the combined annual limit employees can make to all plans accepting elective deferrals, including 401(k) plans. This means that if you contribute to a SIMPLE IRA, you will lower the amount you can contribute to a 401(k). 

Employers are required to make matching contributions using one of two approaches:

  • They can make nonelective contributions of 2% of compensation up to a compensation limit of $285,000 in 2020. This means employers must contribute to all workers' SIMPLE accounts, whether the workers contribute or not. 
  • They can match employees' salary-reduction contribution dollar for dollar up to 3% of compensation (which is not subject to the $285,000 limit). 

Employers are allowed to reduce the 3% matching contributions, but not below 1% -- and employers cannot reduce the contribution below 3% for more than two calendar years out of the five year period ending in the calendar year the reduction is effective. Employers also have to notify employees within a reasonable time before employees decide how much to contribute. 

Do IRA rollovers count as contributions?

IRA rollovers occur when a worker rolls over money from a tax-advantaged retirement account into an IRA. For example, if you leave your job, you could roll over your 401(k) into your traditional IRA. 

Rollovers do not count toward annual contribution limits or affect your ability to make contributions to your retirement accounts. 

Making excess IRA contributions has consequences

Excess IRA contributions are subject to a 6% tax penalty. This penalty applies for each year in which the excess amount remains in your retirement plan.

To avoid being subject to this penalty, you must withdraw the excess contribution and any income earned from it by the due date of your individual income tax return, including extensions. You don't want to be subject to this penalty, so make sure you follow IRA contribution rules for any tax-advantaged account you invest in.