Traditional IRAs: What are the contribution limits and tax benefits?

Tradiitonal Ira Contribution Limit

In 2022, you can contribute a maximum of $6,000 to a traditional IRA ($7,000 if you’re over 50). Contributions up to that limit are tax deductible, though exceptions apply if you or your spouse contributes to a workplace retirement plan.

Table of Contents

  1. 2022 Contribution Limits
  2. Optimizing Your Contributions
  3. Tax Benefits
  4. Keeping Records


2022 Contribution Limits

Traditional IRAs can help you save for retirement by offering tax-deferred savings. The combined contribution limit for 2022 is:

  • $6,000 if you’re under 50.
  • If you’re over 50, you can make a catch-up contribution of up to $7,000. Roth IRA contributions count toward this amount, as do multiple IRAs. These numbers are the same as those in 2021.

Some important things to keep in mind when it comes to IRA contribution limits:

  • Contributions to IRAs must be earned income, meaning that the income must come from work you’ve done for someone else or yourself (if you’re self-employed). Disability benefits also count as earned income, but retirement income (including Social Security payments) does not. Other things that don’t count as earned income include: interest and dividends from investments, income from rental properties, child support payments, and unemployment payments.
  • If you’ve made less than $6,000 (or $7,000 if you’re over 50) in earned income, you can’t contribute more than your taxable compensation to your traditional IRA account.

  • For couples, each individual is subject to the combined contribution limit. Married couples filing jointly with their spouse that have hit their maximum contribution, or have a non-working spouse, can open a spousal IRA, which lets them contribute on behalf of their spouse. The current contribution limit for a spousal IRA is $12,000 annually (or $14,000 if you’re over 50).

Traditional IRAs help you build your retirement savings and plan for the future.

Public can help you structure a long-term portfolio that gets you on the right track for retirement.

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2022 Contribution Limits

Filing StatusUnder 50Over 50
Single$6,000$7,000
Married filing jointly (spousal IRA)$12,000$14,000
Married filing separately$6,000 each$7,000 each


Source: IRS

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Optimizing Your Contributions

Many low and moderate-income investors with traditional IRAs take advantage of the Saver’s Credit, which lets you optimize your contributions by reducing your tax burden. Depending on your adjusted gross income (AGI), you could reduce your taxes by up to 50% of your deduction amount. The Saver’s Credit is applied in addition to traditional IRAs’ deferred tax benefits.

Saver’s Credit (according to AGI)

CreditMarried Filing JointlyHead of HouseholdAll Other Filing Statuses
50%Less than $41,000Less than $30,750Less than $20,500
20%$41,000 – $44,000$30,750 – $33,000$20,500 – $22,000
10%$44,000 – $68,000$33,000 – $51,500$22,000 – $34,000
0%More than $68,000More than $51,000More than $34,000


Source: IRS

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Tax Benefits

In addition to the benefits you may receive from the Savings Credit, traditional IRAs offer you the chance to reduce your tax burden by deferring your taxes until you retire. This means that you may be able to deduct up to $6,000 (or $7,000 if you’re over 50) from your tax return if you contribute to a traditional IRA. When you retire and begin to take distributions from the account, you’ll pay tax at your standard income tax rate.

However, not everyone qualifies for a full deduction on their traditional IRA contributions. Income limits and whether you’re covered by an employer-sponsored retirement plan can lower your deduction or make you ineligible. Deductions are based on your filing status and modified adjusted gross income (MAGI). You should always consult a tax advisor about your individual situation.

2022 Traditional IRA Deduction Limits

Filing status2022 MAGIDeduction
Single, head of household, qualifying widow(er), married filing jointly or separately (neither spouse covered by workplace plan)Any amountFull deduction up to your contribution limit
Married filing jointly or qualifying widow(er) (covered by workplace plan)Less than $109,000Full deduction up to your contribution limit
$109,000 – $129,000Partial deduction
More than $129,000No deduction
Married filing jointly (spouse is covered by workplace plan)Less than $204,000Full deduction up to your contribution limit
$204,000 – $214,000Partial deduction
More than $214,000No deduction
Single or head of household (covered by workplace plan)Less than $68,000Full deduction up to your contribution limit
$68,000 – $78,000Partial deduction
More than $78,000No deduction
Married filing separately (either spouse is covered by workplace plan)Less than $10,000Partial deduction
More than $10,000No deduction


Source: IRS

Keeping Records

It’s important that you keep records of your contributions to your traditional IRA, even if you think you qualify for the deduction or you don’t believe that you will exceed the contribution limit. Most brokerages will inform you if you are due to exceed or have exceeded your contribution limit.

Excess contributions beyond your contribution limit will result in a 6% penalty on the excess amount. This will be assessed every year until you fix the mistake. If you withdraw the excess before April of the next year, you’ll avoid the penalty. After that, you’ll either have to apply it to the next year’s contributions (and pay a year’s worth of penalties) or withdraw the excess and pay the penalty for the time it was in your account.

It’s also important to keep records in case you don’t qualify for a deduction (if your modified adjusted gross income was larger than expected, for example). Taxpayers are required to pay income tax if they don’t qualify for a deduction, so it’s important to keep track of those taxes to avoid paying them when you make withdrawals in retirement. Remember: you’ll have to take required minimum distributions when you reach a certain age.

Traditional IRAs help you build your retirement savings and plan for the future.

Public can help you structure a long-term portfolio that gets you on the right track for retirement.

Build your portfolio

FAQs

Can I contribute to an IRA if I participate in a retirement plan at work?

You can contribute to both traditional and Roth IRAs if you participate in an employer-sponsored retirement plan. However, you may not be able to make deductible contributions if your income exceeds a certain amount.

​​Can you get a company match on your IRA contributions?

While traditional IRAs are individual retirement accounts and therefore aren’t eligible for employer matches, your employer can match IRA contributions with a SIMPLE IRA

What is the deadline to make contributions?

The deadline to make contributions is April 15 of the following year. So 2022 contributions can be made until April 15, 2023.

Are there any exceptions to the traditional IRA contribution limit?

The annual contribution limit applies to individuals under the age of 50. Those over 50 can make catch-up contributions of up to $7,000. If you file a joint return with your spouse, you may also be eligible for a spousal IRA, which has a higher contribution limit.

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