Traditional IRA Contribution Limits for 2021

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Nearly half of respondents to a 2020 TD Ameritrade survey admitted they have less than $100,000 saved for retirement. If you’re worried that you might be falling short of your retirement goals, it’s not too late to start tax-deferred and deductible savings using a traditional individual retirement account.

But before you start socking away money, there are a few things you need to know about IRA contribution limits based on earned income. Keep reading to learn more.

What Counts as Traditional IRA Contributions

Your IRA contribution limits and income are connected. In almost all cases you must have earned income if you plan to contribute to an IRA, but you can only contribute so much each year.

You’ll need to determine if your IRA contribution limits by year are affected by your earned income. According to the IRS, earned income includes the following:

  • Wages, salaries and tips
  • Commissions
  • Net earnings from self-employment
  • Taxable alimony

Good To Know

You don’t have to consider interest, dividend or property income when you determine your IRA contribution limits based on income. Additionally, pension income and annuity income are not considered earned income.

Retire Comfortably

How Much Can You Contribute to an IRA in 2021?

IRA contribution limits for 2021 are the same as the previous two years. Individuals younger than 50 years old can contribute $6,000 to both traditional and Roth IRAs. Those 50 and older can contribute $7,000.

You are allowed to have both traditional and Roth IRAs, but if you are looking to deduct contributions from your taxes, the traditional IRA is the way to go because Roth IRA contributions are not deductible.

Although most people must have earned income before they can contribute to an IRA, there is an exception known as a spousal IRA. If you file jointly and your taxable compensation is less than your spouse’s earnings, you can still contribute to the IRA. That rule applies even if you don’t have any income.

If you are covered by a retirement plan at work, take a look at this 2021 IRA contribution limits chart, which indicates how much of a deduction you can receive based on filing status and modified adjusted gross income:

Filing Status Partial Deduction If Income Is: No Deduction If Income Exceeds:
Single, head of household, or married filing separately if you didn’t live together during the year Over $66,000 but less than $76,000 $76,000
Married filing jointly or qualifying widow(er) Over $105,000 but less than $125,000 $125,000
Married filing separately if you lived with your spouse during the year Less than $10,000 $10,000

Retire Comfortably

If you’re not covered by a workplace retirement plan, you can get a full deduction regardless of income if you are among the following:

  • Single
  • Head of household
  • Qualifying widow(er)
  • Married filing jointly or separately with a spouse not covered by a plan at work

If you are married filing jointly with a spouse who is covered by a plan at work, you receive:

  • A full deduction if your adjusted gross income is $198,000 or less
  • A partial deduction if your AGI is more than $198,000 but less than $208,000
  • No deduction if your AGI is $208,000 or higher

As soon as you open your traditional IRA, you can begin making contributions. If you make more than the allowable contribution to your IRA in a year, you can apply the overage to the next tax year. Penalties may be assessed if you make an excess contribution.

What You Need To Know

Some people can receive up to a 50% tax credit for making eligible IRA contributions. The maximum credit offered through the Saver’s Credit program is $2,000 for individuals, or $4,000 if you are married filing jointly. An IRS chart can help you determine if you are eligible.

IRA rules for 2021 include positive changes for the average taxpayer, including slightly higher income limits for making contributions.

One of the best things about a traditional IRA is that it can lower your taxable income. This can result in great tax savings each year. For example, a single taxpayer under 50 years of age can deduct the $6,000 traditional IRA contribution from taxable income. If you have an income of $60,000, this deduction reduces your taxable income to $54,000. At a tax rate of 22%, the deduction shaves $1,320 off of your federal taxes.

Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial, and up to date. We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy.

About the Author

Harry Hoover is a freelance writer, copywriter, blogger and content developer. He writes on self-improvement topics, business and marketing, social media and tourism. Harry started his career as a print and broadcast journalist, covering business and government, as well as cops and courts. He wrote a media criticism column and was managing editor for an all-news radio station. Harry hosted a daily call-in talk show and was a college sports color commentator. Additionally, Harry spent 35 years in advertising and PR, where he handled banking, mortgage, tourism, business and industrial accounts. Most recently, he owned an advertising agency, which he sold in 2015. He is the author of Moving to Charlotte: The Un-Tourist Guide, Born Creative: Free Your Mind, Free Yourself, Get Glad – Your Practical Guide To A Happier Life and The Dad's Book Of Jokes.

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