Who Can Contribute to a Traditional IRA?
Explore the criteria that determine who can contribute to a Traditional IRA. This overview clarifies how personal and financial circumstances shape your eligibility.
A Traditional Individual Retirement Arrangement (IRA) is a personal savings plan that offers tax advantages to help individuals prepare for retirement. Contributions may be tax-deductible, and the investments within the account can grow tax-deferred until withdrawal. The Internal Revenue Service (IRS) governs the rules that determine who is eligible to contribute to a Traditional IRA.
Core Contribution Requirements
The primary rule for contributing to a Traditional IRA is that an individual must have taxable compensation. The IRS defines compensation as money earned from working, including wages, salaries, tips, bonuses, and commissions. Net earnings from self-employment also qualify. Certain other payments, such as specific types of alimony from agreements before 2019 and nontaxable combat pay, also qualify as compensation.
Income generated from property, like rent, interest, or dividends, is not considered eligible for making IRA contributions. Money received from a pension, an annuity plan, or deferred compensation from a prior year also does not qualify. This distinction ensures contributions are funded by active work.
Previously, individuals were barred from contributing to a Traditional IRA after reaching age 70½. The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 eliminated this age restriction. Now, an individual of any age can contribute, provided they have sufficient earned income.
Annual Contribution Limits
The IRS sets annual limits on the amount you can contribute to all of your IRAs, including both Traditional and Roth. For 2024 and 2025, the maximum contribution is $7,000 for individuals under age 50. This limit is subject to periodic adjustments for inflation by the IRS.
To help individuals nearing retirement boost their savings, the tax code allows for catch-up contributions. Individuals who are age 50 or over can contribute an additional $1,000. This brings their total potential contribution for 2024 and 2025 to $8,000.
Contributions cannot exceed your total earned compensation for the year. For instance, if a student works a part-time job and earns $4,000 in a year, their maximum IRA contribution is limited to $4,000. Any contribution made beyond an individual’s earned income or the annual limit is an excess contribution and may be subject to a 6% penalty tax for each year it remains in the account.
Spousal IRA Contributions
The earned income requirement has an exception for married couples. A spousal IRA allows a working spouse to contribute to a Traditional IRA for their non-working or low-earning partner, enabling the household to save for both individuals. The account is established in the name of the non-working spouse, who maintains ownership.
To be eligible for a spousal IRA contribution, the couple must file a joint federal income tax return. The total combined contributions to both the working spouse’s IRA and the spousal IRA cannot exceed the couple’s total taxable income for the year, nor can they exceed the annual limit for two separate IRAs.
For example, if a couple files a joint return and the earning spouse has at least $14,000 in compensation, they can contribute the maximum of $7,000 to their own IRA and another $7,000 to their spouse’s IRA for 2024 or 2025 (assuming both are under 50). If both spouses are age 50 or over, they could contribute a combined total of $16,000.
Impact of a Workplace Retirement Plan
Having a workplace retirement plan, such as a 401(k), does not prevent you from contributing to a Traditional IRA. The presence of a workplace plan does not affect your ability to contribute; instead, it can limit your ability to deduct those contributions on your tax return.
The tax deductibility of your Traditional IRA contribution depends on whether you or your spouse are covered by a workplace retirement plan and your Modified Adjusted Gross Income (MAGI). If neither you nor your spouse (if filing jointly) is covered by a workplace plan, you can deduct your full contribution regardless of your income.
If you are covered by a workplace plan, your deduction may be reduced or eliminated depending on your income. The IRS publishes specific MAGI phase-out ranges each year that determine the extent of the deduction. For 2025, a single filer covered by a workplace plan will see their deduction phased out with a MAGI between $79,000 and $89,000. Even if your income exceeds these thresholds, you can still make a non-deductible contribution.