IRA contribution limits and deadlines

hourglass-time-IRA-deadlines

Investing in a retirement account can be a convoluted and confusing process. IRAs are subject to some strict rules and regulations and, for this reason, it’s important to familiarize yourself with them to make the most of your retirement funds. 

Here, we go over how much you can contribute to IRAs depending on your situation, as well as what the deadlines for making these contributions are. 

What are the contribution limits for IRAs?

IRA contribution limits are set by the IRS to determine how much money you can contribute to your account. 

In this video, Joe DiDomenico, Director of Retirement Services at Yieldstreet, goes over what the contribution limits are for IRAs.

You can make contributions to IRA accounts as long as you have ‘earned income’. This is any money that is earned either working for an employer or through self-employment. Earned income also includes spousal income if you file jointly. Earned income is different from dividends or rental income from an investment property, which are deemed passive income. 

The following table illustrates how much you can contribute to your IRA, depending on your age:

table-IRA-contribution-limits-by-age

As you can see, the amount of earned income you can contribute in a calendar year is $6,000, or $7,000 if you are 50 or older. 

Rules for IRA contributions are aggregated

It’s important to note that these contribution rules are in aggregate of all of your accounts. 

For example, you can either contribute your entire allowable amount to one single IRA account, or 1/10 of your allowable amount to 10 different IRA accounts. 

When it comes to IRAs, you’re allowed to make as many individual contributions as you like. 

You can also open an IRA account at any time to make an allowable contribution. These deadlines are the same for Traditional IRAs and Roth IRAs. 

What if I contribute to an employer-sponsored plan or I am self-employed?

Contributing to an employer-sponsored plan can be any of the following:

  1. You are participating in a 401(k) plan offered by your employer and money is being placed into this account either by you or you and your employer (contribution-matching). 
  2. You own a business with a retirement plan you are contributing to. 
  3. You work for a company that provides a pension program. 

If you are contributing to an employer-sponsored plan, it may still make sense for you to contribute to an IRA, but this money will not qualify for a current-year tax deduction.

Contributing to a Roth IRA

For those who do contribute to a 401(k), it might still make sense to contribute to a Roth IRA. With Roth IRAs, contribution limits are the same. However, if your earned income exceeds a certain amount of money, you may not be able to contribute to an IRA. 

The following table illustrates the phase-out limits for tax-filing individuals. 

table-IRA-contribution-phase-out-2020

For example, for a married person in 2020, if your adjusted gross income is more than $193,000, you begin to be phased out of being able to contribute to an IRA. When your adjusted gross income reaches $203,000, you are completely phased out. For a single filer, you begin being phased out at $122,000 and completely phased out at $137,000. For married individuals filing separately, if you make more than $10,000, you are phased out of contributing. 

For self-employed people who have established a small company plan and for people who participate in an employer-sponsored plan, contributions can be made during the tax year and up to the tax filing date of the employer including extensions.

When can IRA contributions be made?

When to contribute to your IRA is an important consideration as there are several deadlines that can affect your contribution. 

In this video, Joe DiDomenico, Director of Retirement Services at Yieldstreet, goes over the deadlines associated with retirement accounts.

IRA contributions can be made during the calendar year as the money is earned, this is called a current year contribution. They can also be made by April 15th of the following year (or the date of the tax filing, whichever is sooner), this is called a prior year contribution.  These deadlines are the same for both Traditional and Roth IRAs

If you’re looking for more details on IRA contribution deadlines, review IRS Publication 590A. This simple document clarifies every detail about IRA contributions. For information on employer-sponsored plan contribution deadlines, you can review IRA Publication 560.

The Yieldstreet IRA offers investors the ability to invest in Yieldstreet products with a retirement account. You can explore setting up your Yieldstreet IRA in-depth and get answers to some of the most Frequently Asked Questions about the Yieldstreet IRA. If you have any additional questions about how to set up and get started with a Yieldstreet IRA, please reach out to [email protected].

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