IRA Limits You Should Know in 2024

Individual Retirement Accounts, or IRAs, are retirement savings account that come with added tax benefits. Every year, there are limits on how much you can contribute to your IRA, which are influenced by your modified adjusted gross income (MAGI) and whether you are covered by a workplace retirement plan. 

Understanding these rules is essential for maximizing your retirement savings and taking full advantage of IRA contributions. Here's a closer look at what you need to know about IRA contribution limits in 2024.

All information cited in this article is taken from the IRS limit increases for 2024, which can be found here.

 

What are the IRA Changes for 2024

The year 2024 introduces several changes affecting both traditional IRA contributions and contributions to a Roth IRA.

Notable 2024 IRA updates include:

1. IRA Contribution Limit Increase: The limit for IRA contributions has been raised to $7,000 for 2024, up from the previous $6,500. This change applies to all individuals eligible to contribute.
2. Expanded Income Phase-Out Ranges: Eligibility for deductible contributions to traditional IRAs, contributions to a Roth and the Retirement Savings Contributions Credit (Saver's Credit) have seen adjustments. The phase-out ranges based on filing status and MAGI have increased, allowing more individuals to benefit from tax deductions and contributions.

For single taxpayers covered by a workplace retirement plan, the phase-out range for deductible contributions has increased. For married couples filing jointly, the income phase-out range for 2024 for Traditional IRA contributions is now set at $38,250, depending on specific conditions and contributions.

The catch-up contribution limit, created for individuals aged 50 and over to accelerate their retirement savings, remains an additional $1,000, maintaining the opportunity for older savers to contribute beyond the standard limit.

These changes, as outlined by the SECURE 2.0 Act, aim to enhance the flexibility and capacity for individuals to save for retirement. Consulting with a financial advisor can help you navigate these changes and strategize the best path for your retirement savings.

 

Roth IRA Contribution Limits

A Roth IRA offers tax-free growth and withdrawals after the age of 59 ½. However, there are contribution limits in place, which are determined by your age.

The income limit for contributions to a Roth IRA is directly tied to your filing status and MAGI, determining the extent to which your IRA contribution is covered by tax advantages. For 2024, the upper limit for a contribution to a Roth IRA reaches $240,000 for certain filers, to account for inflation and increasing wages. 

Roth IRA contribution limits for 2024 are the following:

• Under Age 50: $7,000
• Age 50 and Older: $8,000

These limits are subject to change, so it's important to stay updated with the IRS guidelines. The higher limit for individuals aged 50 and older is known as the "catch-up" contribution, designed to help those closer to retirement age save more.

In addition to understanding these limits, it can be helpful to consider the strategy of converting a Traditional IRA to a Roth IRA. This process, known as a Roth conversion, involves transferring the pre-tax assets of a traditional IRA into a Roth IRA, thereby shifting the tax implications from deferred (tax-deductible contributions and taxable withdrawals in retirement) to upfront taxation (contributions are taxed at the time of conversion, but withdrawals in retirement are tax-free).

Roth IRA Income Limits & Phase-Out Ranges

Roth IRA contributions are also subject to income limits, which can affect how much you're able to contribute. These limits vary depending on your filing status and your MAGI. If your income exceeds these limits, you may be able to contribute a reduced amount, or you might not be eligible to contribute to a Roth IRA at all.

Here's a table for 2024 that outlines the income limits and phase-out ranges for Roth IRA contributions:

Filing Status	MAGI Range for Reduced Contribution	MAGI Range for No Contribution
Single	$146,000 - $161,000	More than $161,000
Married Filing Jointly	$230,000 - $240,000	More than $240,000
Married Filing Separately	$0 - $10,000	More than $10,000

If your MAGI falls within the phase-out range, your contribution limit is reduced. The reduction is calculated based on where your income falls within the range.

Here's how to calculate the reduction:

1. Determine your MAGI.
2. Subtract the lower limit of your filing status's phase-out range from your MAGI.
3. Divide the result by the range width ($15,000 for singles; $10,000 for married filing jointly; $10,000 for married filing separately).
4. Multiply this percentage by the maximum contribution limit ($6,500 for under 50; $7,500 for 50 and over).
5. Subtract this number from the maximum contribution limit to find your reduced limit.

For instance, if you're single, under 50 and your MAGI is $136,500 (which is halfway through the phase-out range for singles), you would be eligible to contribute half of the maximum amount, or $3,250.

 

Traditional IRA Contribution Income Limits & Phase-Out Ranges

While Traditional IRAs allow for pre-tax contributions, offering tax relief in the year the contribution is made, there are limits that affect how much of your contribution can be deducted from your taxable income. These limits depend on your income and whether you (or your spouse, if applicable) are covered by a retirement plan at work.

The ability to deduct traditional IRA contributions on your taxes is a significant benefit, dependent on your income and whether you're covered by a workplace retirement plan. In 2024, these deductible contributions will see phase-out ranges adjust to ensure more taxpayers can reduce their taxable income through retirement savings. 

Below is a table of the income phase-out ranges for Traditional IRA deductions for 2024. These ranges determine how much of your IRA contribution can be deducted from your taxable income.

Filing Status	2024 MAGI for Partial Deduction	2024 MAGI for No Deduction
Single, Participants of a workplace retirement plan	$77,000 - $87,000	More than $87,000
Married Filing Jointly, Participant of a workplace retirement plan	$123,000 - $143,000	More than $143,000
Married Filing Jointly, Spouse is a participant	$230,000 - $240,000	More than $240,000
Married Filing Separately, Participant of a workplace retirement plan	$0 - $10,000	More than $10,000

What is the Income Limit for Traditional IRAs?

Unlike Roth IRAs, Traditional IRAs do not have an income limit for contributions. Any individual with earned income can contribute to a Traditional IRA. However, the ability to deduct these contributions on your taxes is subject to income limits, especially if you or your spouse are covered by a retirement plan at work.

Deductions for Traditional IRA contributions are determined based on your MAGI and your tax-filing status.

Here is a table outlining how your filing status and MAGI affect your Traditional IRA deduction for both 2024 and 2023:

Filing Status	2024 MAGI Deduction Range	2023 MAGI Deduction Range
Single, Participants of a workplace retirement plan	Up to $77,000 (Full Deduction), $77,000 - $87,000 (Partial Deduction) Above $87,000 (No Deduction)	Up to $73,000 (Full Deduction), $73,000 - $83,000 (Partial Deduction) Above $83,000 (No Deduction)
Married Filing Jointly, Participant of a workplace retirement plan	Up to $123,000 (Full Deduction), $123,000 - $143,000 (Partial Deduction) Above $143,000 (No Deduction)	Up to $116,000 (Full Deduction), $116,000 - $136,000 (Partial Deduction) Above $136,000 (No Deduction)
Married Filing Jointly, Spouse is a participant	Up to $230,000 (Full Deduction), $230,000 - $240,000 (Partial Deduction) Above $240,000 (No Deduction)	Up to $218,000 (Full Deduction), $218,000 - $228,000 (Partial Deduction) Above $228,000 (No Deduction)
Married Filing Separately, Participant of a workplace retirement plan	Up to $10,000 (Partial Deduction), Above $10,000 (No Deduction)	Up to $10,000 (Partial Deduction), Above $10,000 (No Deduction)

The deduction phases out entirely above these income levels, meaning high-income individuals may not be able to deduct their Traditional IRA contributions if they or their spouse are covered by a workplace retirement plan. 

 

What Happens if You Over Contribute

Overcontributing to your IRA, be it a traditional or Roth, carries potential tax implications, given the strict limits set by the IRS. The excess contributions are subject to a 6% tax for each year they remain uncorrected in your account. However, there are steps you can take to address the situation:

1. Withdraw the Excess Before Tax Deadline: If you realize you've overcontributed before you file your taxes, you can withdraw the excess contribution (and any earnings on that contribution) to avoid the 6% tax. This withdrawal must be completed before the tax filing deadline (including extensions) for the year you made the overcontribution.
2. Apply Excess to Next Year: In some cases, you might be able to apply the excess contribution to the next tax year's contribution limit. This does not remove the 6% tax for the year in which the overcontribution occurred, but it can help avoid future taxes on excess contributions.
3. Corrective Distribution: If the excess contributions and any associated earnings are removed after the tax deadline (but before the deadline of the following year, including extensions), you will still face the 6% tax for the year of the overcontribution. However, this action prevents the tax from applying in subsequent years.
4. Report Correctly: If you've taken a corrective distribution, it's important to report it correctly on your tax return. This might involve amending a previously filed return if the correction is made after you've already submitted your taxes.

For those navigating the complexities of IRA contributions and deductions, it’s a good idea to consult a financial expert, such as a certified public accountant (CPA). A CPA can provide personalized advice based on your specific situation, ensuring compliance and optimizing your retirement planning strategies.