Here's How to Calculate Your IRA Contributions for 2023

This quick guide can tell you how much you're able to save.

In 2023, the annual contribution limit to individual retirement accounts, or IRAs, is rising by $500 to $6,500. There's also a $1,000 catch-up contribution allowed for individuals aged 50 and older, making the total maximum $7,500.

However, this doesn't necessarily mean that you can contribute this much to your IRA. As we'll see, there are some income-based limitations.

It's also worth noting that to make any IRA contributions, you need to have earned income that is equal to or greater than the amount you contribute. The one major exception is if you don't work, but your spouse does, they can contribute to an IRA on your behalf.

How much can you contribute to a traditional IRA?

Technically, everyone with earned income can contribute to a traditional IRA. However, not everyone can claim the traditional IRA tax deduction, which is typically the biggest reason to use this type of account.

Specifically, if you are eligible for a retirement plan at work, your ability to use the IRA deduction depends on your income. If you don't have a retirement plan at work, your ability to use the IRA deduction is only affected if you're married and your spouse has an employer-sponsored retirement plan.

Here are the income thresholds for 2023 if you have an employer-sponsored retirement plan:

And if you don't, but your spouse has an employer's retirement plan, the full deduction limit is $218,000 and the phase-out limit is $228,000.

How much can you contribute to a Roth IRA?

Unlike traditional IRAs, Roth IRA contributions are income-restricted for everyone, regardless of employment status. For 2023, here are the important income thresholds to know:

Calculating your IRA contributions for 2023

Here's what these income charts mean. If your modified adjusted gross income (AGI) is less than the number in the middle column, you can make a full Roth IRA contribution or take a full traditional IRA deduction, up to the annual limit. If your modified AGI is greater than the amount in the phase-out column, you can't contribute to a Roth or use the traditional IRA deduction at all. And if your modified AGI is between the two limits, you can make a reduced contribution, which can be determined with these steps:

1. Start with your modified AGI.
2. Subtract the full contribution limit for your tax filing status (the middle column).
3. Divide by $15,000 if you're single or head of household, or $10,000 for any other status.
4. Multiply the annual maximum IRA contribution by this result.
5. Subtract this from the maximum contribution limit to find your reduced limit.

As an example, let's say that you are under 50, married filing jointly, and want to contribute to a Roth IRA account in 2023, and your modified AGI is $220,000. Here's how it would work:

1. Your modified AGI is $220,000
2. Subtract the $218,000 limit for a full contribution, leaving $2,000.
3. Divide $2,000 by $10,000, which equals 0.2.
4. Multiply by $6,500, which gives you $1,300.
5. Subtracting $1,300 from $6,500 shows a reduced Roth IRA contribution limit of $5,200 for 2023.

You may still be able to make 2022 contributions also

One important point to know about IRA contribution limits is that you have until the tax deadline to get your contributions into your account. In other words, your 2023 contributions can be made at any time between Jan. 2023 and Tax Day in April 2024. So, if the tax deadline for 2022 hasn't passed yet and you haven't maxed out your 2022 IRA contributions, you still have time to get those in as well.