IRA Contribution Rules and Income Limits

An Individual Retirement Arrangement (IRA) contribution is a deposit into a retirement account that offers tax advantages. These accounts supplement other retirement income sources like Social Security or employer-sponsored plans. The Internal Revenue Service (IRS) sets the rules for who can contribute, contribution amounts, and the tax implications, which helps savers avoid penalties.

IRA Contribution Types and Limits

The two primary types of IRAs are the Traditional IRA and the Roth IRA, which differ in their tax treatment. Contributions to a Traditional IRA are often made with pre-tax dollars, meaning you may be able to deduct the amount from your taxable income. The funds within the account grow tax-deferred, and you pay income tax on withdrawals during retirement.

Conversely, contributions to a Roth IRA are made with post-tax dollars, so there is no upfront tax deduction. The benefit of a Roth IRA is that your contributions and any earnings grow completely tax-free, and qualified withdrawals in retirement are not subject to federal income tax. This is advantageous for individuals who anticipate being in a higher tax bracket during their retirement years.

For 2025, the maximum contribution is $7,000 for individuals under the age of 50. This is a total limit across all of an individual’s Traditional and Roth IRAs combined, not a per-account limit.

Individuals who are age 50 or older at any point during the calendar year are permitted to contribute an additional amount above the standard limit. For 2025, this additional “catch-up” amount is $1,000. This provision raises the total possible contribution for those age 50 and over to $8,000 per year.

The deadline to make IRA contributions for a tax year is the unextended tax filing deadline of the following year, not December 31. For instance, contributions for the 2024 tax year can be made up until April 15, 2025. This flexibility gives individuals extra time to fund their retirement accounts for the previous year.

Income Rules for IRA Contributions

Your ability to benefit from IRA contributions is tied to your Modified Adjusted Gross Income (MAGI). For Traditional IRAs, MAGI determines if your contributions are tax-deductible. If you are not covered by a workplace retirement plan, such as a 401(k), your Traditional IRA contribution is fully deductible regardless of your income.

For the 2025 tax year, a single individual covered by a workplace plan can take a full deduction if their MAGI is $79,000 or less, with the deduction phased out for MAGI between $79,000 and $89,000. For married couples filing jointly where the contributing spouse has a workplace plan, the full deduction is available with a MAGI of $126,000 or less, with a phase-out between $126,000 and $146,000.

Roth IRA rules determine if you can contribute at all; if your income is too high, you are ineligible to contribute directly. For 2025, a single filer can make a full Roth IRA contribution if their MAGI is less than $150,000. The ability to contribute is phased out for MAGI between $150,000 and $165,000.

For those who are married and file a joint tax return, a full Roth IRA contribution is allowed in 2025 if their MAGI is less than $236,000. The contribution amount is phased out for couples with a MAGI between $236,000 and $246,000. These income thresholds are subject to annual adjustments for inflation by the IRS.

If your income is too high for a deductible Traditional IRA contribution, you can still make a non-deductible one. You contribute with after-tax dollars, and while you don’t get a current tax break, the earnings grow tax-deferred until retirement. This option is available to anyone with earned income, as there are no income limitations for making non-deductible contributions.

Special Contribution Situations

The spousal IRA rule allows a working spouse to make IRA contributions on behalf of a non-working or low-earning spouse. To be eligible, the couple must file a joint tax return, and the contributing spouse must have enough earned income to cover contributions for both themselves and their spouse.

For example, a married couple where both individuals are over 50 could contribute a total of $16,000 for 2025 ($8,000 for each spouse), provided the working spouse earns at least that much. The contributions can be made to either a Traditional or Roth IRA for the non-working spouse, subject to the same income limits and rules that would apply if they had their own earned income.

An excess contribution occurs when you contribute more to your IRAs than is legally allowed for a year. This can happen by exceeding the annual limit or by making a Roth IRA contribution when your income is above the eligibility threshold. The IRS imposes a 6% penalty tax on the excess amount for each year it remains in the account, which is paid using Form 5329.

To avoid the recurring penalty, the excess contribution must be corrected. The most common method is to withdraw the excess amount, along with any net income attributable to it, before the tax filing deadline for the year the contribution was made. This avoids the 6% penalty, though you will pay income tax on the earnings.

Reporting Contributions on Your Tax Return

The deduction for contributions to a Traditional IRA is reported on Schedule 1 of Form 1040. The total amount of your deductible contributions is entered on this schedule, which then flows to the main Form 1040, reducing your adjusted gross income (AGI).

This reduction in AGI can have a favorable impact beyond just lowering your income tax, as it can also help you qualify for other tax credits and deductions that have income limitations. You must accurately calculate the deductible portion of your contribution based on your income and whether you are covered by a retirement plan at work.

For individuals who make non-deductible contributions to a Traditional IRA, you must file IRS Form 8606, “Nondeductible IRAs.” The purpose of this form is to track your basis in the IRA, which is the total amount of non-deductible contributions you have made. This tracking is important so that when you take distributions in retirement, the portion representing your basis will be returned to you tax-free.

Failing to file Form 8606 can result in a penalty and complicates proving your basis to the IRS when you begin taking withdrawals. The form is also used to report distributions from IRAs if you have ever made non-deductible contributions, and to report conversions from a Traditional IRA to a Roth IRA.