2019 and 2020 IRA Contribution and Income Limits

Individual Retirement Accounts (IRAs) are self-directed individual retirement plans that offer certain tax advantages. Many financial institutions offer these plans, and IRA owners can invest in any type of investment that the custodian allows, ranging from simple Certificates of Deposit (CDs) to individual stocks and bonds.An IRS is one of the best ways to save for retirement, but you need to know the limits!

One of the great things about an IRA is that you can contribute to your IRA all the way up until your tax filing deadline for the year.Note: Due to the coronavirus pandemic, the 2019 IRA contribution deadline has been moved to 7/15/2020 due to the change in tax deadline. The official IRS guidelines for this are here (specifically question #17).Here are the current IRA contribution deadlines:2019 Tax Year: July 15, 20202020 Tax Year: April 15, 2021

The IRS announced the 2020 IRA contribution limits on November 6, 2019. Here’s how much you can contribute for 2020. Note: these limits are the same as 2019.

However, there are income limits to contributing to a Roth or Traditional IRA. These limits did adjust for 2020.

Remember, if you’re contributing to a traditional IRA, there are different limits whether you have a workplace retirement plan or not. 

The IRS announced the 2019 IRA contribution limits on November 1, 2018. Here’s how much you can contribute for 2019.

However, there are income limits to contributing to a Roth or Traditional IRA. These limits also adjusted in 2019.

Remember, if you’re contributing to a traditional IRA, there are different limits whether you have a workplace retirement plan or not. 

Here are the 2018 IRA contribution limits. Remember, you can make your contribution all the way until April 15. 

It’s important to remember that you can only contribute to a traditional or Roth IRA if you meet certain income limits. If you exceed these limits, you can look at a non-deductible IRA (which can be used with a backdoor Roth IRA if you want to).

Anyone with earned income and younger than 70 1/2 can contribute to a traditional IRA, but tax deductibility is based on income limits and participation in an employer plan.

If you contributed to much, you will need to call your IRA provider and withdraw the excess contribution. If you made too much money to qualify for an IRA, you would need to do an IRA re-characterization. You can call your IRA company and they can walk you through the process.

Two types of IRAs, Traditional and Roth IRAs, allow employees to control and make contributions to on their own, while the third type of IRA, the SEP IRA, is distinct in being an employer-provided benefit. Below is an overview of each of these three types.If you don’t know which is best for you, check out this guide: The Ultimate Guide To Roth vs Traditional IRA Contributions.Traditional IRAs are tax-deductible (as long as the owner’s income does not exceed certain limits) and tax-deferred retirement accounts, meaning that annual contributions to the IRA are not taxed at the time of contribution and are instead taxed when money is withdrawn.This may be a good choice for investors who expect to be at a lower income tax bracket in the future (or investors who believe future tax brackets will be lower in general, even if they believe they will be making the same amount of money).Roth IRAs are post-tax retirement accounts, meaning that money contributed to the account has already been taxed.However, both the amount contributed and future earnings on the investments in the account may be withdrawn without paying further taxes. This may be an advantageous choice for investors who believe they will be in a higher tax bracket in the future.Simplified Employee Pension (SEP) IRAs are used by business owners and must also be offered to all qualifying employees, if there are any.Employees that are at least 21, who have worked for that employer for three or more years out of the previous five, and who have earned at least $600 (the limit for both 2017 and 2018) for that year qualify to participate in the plan.Only employers may contribute to a SEP IRA, though they are not locked into making certain annual contributions the same way a 401(k) plan might be. 

IRAs, because they are designed to provide for people during their retirement years, impose restrictions on withdrawing funds before retirement age, which is defined as age 59½ or complete and total disability. If the withdrawal does not meet the requirements for a qualifying exception to these provisions, a 10% penalty will apply to the amount withdrawn.

Using either a Traditional or Roth IRA (whichever makes most sense in your tax situation) is an excellent tool in addition to any retirement plan your employer offers, including 401(k) plans and SEP-IRAs.Individuals should attempt to make the maximum contribution allowed to their Traditional and/or Roth IRAs annually to take full advantage of the tax savings available.

Written by Investors Wallets

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