An individual retirement account (IRA) is an excellent way to put your money to work while you save for your retirement. Even better, this type of account can be held in addition to your company’s retirement plan or 401(k) scheme. Currently, the two most common kinds of IRAs for those who are not self-employed or small business owners are traditional IRAs and Roth IRAs.
Read on to see the traditional and Roth IRA contribution and income limits for 2020 so that you can plan out your deduction and contribution amounts and avoid paying additional penalties and income tax.
2020 IRA Deduction & Income Limits for Traditional IRA
- $6,000 MAX contribution limit
- $1,000 catch up contribution limit (over age 50)
The ideal option for those who want to save some money on tax in the short term, traditional IRAs allow you to deduct your contributions from your taxable income immediately. However, you could end up paying more tax in the long term because you will pay income tax on your earnings as well as your contributions once you start to withdraw your IRA funds during your retirement.
Refer to the following table for the 2020 IRA limits on deductions and contributions to your traditional IRA by modified adjusted gross income (AGI):
If You Are Covered By A Retirement Plan At Work
| If your filing status is…. | And your Modified AGI is… | Then you can take… |
|---|---|---|
| Single or head of household | 65k or less | full deduction up to amount of contribution limit |
| > 65k, but < 75k | partial deduction | |
| > 75k | no deduction | |
| Married filing jointly or qualifying widow(er) | 104k or less | full deduction up to amount of contribution limit |
| > 104k, but < 124k | partial deduction | |
| > 124k | no deduction | |
| Married filing separately | < 10k | partial deduction |
| > 10k | no deduction |
If Your Spouse Is NOT Covered By A Retirement Plan
| If your filing status is… | And your Modified AGI is… | Then your spouse can take… |
|---|---|---|
| You are covered, but your spouse is not (MFJ) | 196k or less | full deduction up to amount of contribution limit |
| > 196k, but < 206k | partial deduction | |
| >/= 206k | no deduction | |
| You are covered, but your spouse is not (MFS) | < 10k | partial deduction |
| > 10k | no deduction |
2020 Roth IRA Contribution and Income Limits
- $6,000 MAX contribution limit
- $1,000 catch up contribution limit (over age 50)
A Roth individual retirement account is a good option for those who can wait to enjoy the tax benefits on their savings until they are ready to begin withdrawing funds in retirement. With this kind of IRA, your contributions come out of your after-tax income, so you can’t deduct your contribution from your taxable income in the same year that you make the deposit.
However, once the funds are in your account, they can begin to multiply tax-free and you won’t pay tax on either the investment gains earned or the original capital once you begin to withdraw the funds in retirement.
Here are the Roth IRA contribution and income limits for 2020:
Income Limits on Roth IRA
| If your filing status is…. | And your Modified AGI is… | Then you can contribute… |
|---|---|---|
| Single, head of household, married filing separately (not living with spouse during year) | < 124k | up to limit |
| >/= 124k, but < 139k | reduced amount | |
| >/= 139k | zero | |
| Married filing jointly or qualifying widow(er) | < 196k | up to limit |
| > 196k, but < 206k | reduced amount | |
| >/= 203k | zero | |
| Married filing separately (lived with spouse during year) | < 10k | reduced amount |
| > 10k | zero |
Consult with Advisors at ML&R Wealth Management LLC
If you need any assistance in interpreting the 2020 IRA limits or want to find out how to work the Roth IRA contribution and income limits 2020 to your advantage, don’t hesitate to contact the professional financial advisors at ML&R wealth management. With over 20 years in the business, our extensive experience and evidence-based strategies can help you maximize your wealth potential and enjoy a worry-free retirement.
Give us a call to schedule your free initial consultation today!