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Short Summary
Main recommendation: Know the IRA contribution rules, because they determine how much you can put in each year, whether contributions are tax-deductible, whether Roth eligibility is limited by income, and how to fix over-contributions before penalties apply. Rob Berger walks through nine rules, with the IRS as the authoritative reference he links below the video (the summary also incorrectly lists a tenth item about spousal IRAs separately, but the video covers nine total).
Key Points
- The 2021 and 2022 annual limit is $6,000 per person, or your taxable compensation if that is less, and it applies across all IRAs you own combined.
- Anyone 50 or older can add a $1,000 catch-up contribution, which is not indexed for inflation, bringing the total to $7,000.
- Traditional IRAs have no income limit for contributions, but Roth IRAs phase out at higher modified adjusted gross income levels.
- Traditional IRA contributions may not be deductible depending on tax filing status, whether you or your spouse have a workplace retirement plan, and income.
- Since 2020, there is no age limit for contributing to either a traditional or Roth IRA, which corrects the old 70½ cutoff for traditional IRAs.
- A spousal IRA lets a non-working spouse contribute based on the working spouse's compensation, with combined contributions not exceeding that compensation.
Details Worth Noting
- Concrete instructions:
- Check the IRS deduction pages for traditional IRAs and select your filing status and modified adjusted gross income to see whether your contribution is fully deductible, partly deductible, or not deductible.
- For Roth IRAs, pick your filing status, enter your modified adjusted gross income, and check the 2021 or 2022 table to see whether you can contribute the full amount or a reduced amount.
- If you contribute too much, remove the excess contributions plus any earnings on them by the due date of your individual tax return, including extensions, to avoid the penalty.
- Consider consulting a tax professional before making important IRA moves or decisions, especially when correcting excess contributions.
- Contributing to a workplace plan such as a 401(k), 403(b), or TSP does not prevent you from also contributing to an IRA.
- The penalty for excess contributions is 6 percent per year on the excess amount for each year it remains in the IRA.
- For 2021 contributions, the deadline is the 2021 tax return due date, April 15, 2022.
- Because the $1,000 catch-up amount is fixed, it would take an act of Congress to change it, while the $6,000 limit adjusts with inflation.
Bottom Line
Your IRA eligibility depends less on age than on income, workplace plan access, and tax filing status, so check those factors against the IRS resources before contributing, and act quickly if you exceed the limit.
