There are no income limits for traditional IRAs 1; however, there are income limits for tax-deductible contributions. There are income limits for Roth IRAs. No, there is no maximum income limit for a traditional IRA. Anyone can contribute to a traditional IRA.
While a Roth IRA has a strict income limit and people with incomes above it can't contribute at all, that rule doesn't apply to a traditional IRA. If you (and your spouse, if you're married) aren't covered by an employer-sponsored retirement plan, you can deduct your full contribution from your taxes. The government charges a 10% penalty, in addition to any ordinary income tax due, for early withdrawals from a traditional IRA, and a state tax penalty may also apply. While you can make non-deductible contributions to a traditional IRA no matter how much money you make, you are subject to an income limit for deductible contributions if you or your spouse have access to an employment retirement plan.
People who juggle multiple IRA accounts or who set automatic contributions that are too high could end up investing too much money in a Roth IRA or a traditional IRA. These accounts allow a person with earned income to contribute on behalf of their spouse, who does not work for a living wage. If you don't meet the later deadline, you can still fix it by reducing next year's contributions by the excess amount. When making a contribution for the previous year, be sure to indicate the applicable year on your check or any attached contribution form.
You pay taxes on your money before you contribute, but you get tax-free profits and withdrawals when you retire. If your earned income for the year is lower than the contribution limit, you can only contribute to your earned income. However, you can still contribute to a Roth IRA and make cumulative contributions to a Roth or traditional IRA, regardless of your age. If you contribute too much or contribute to a Roth account when your income is too high, you'll have to pay a 6% penalty on the excess contribution each year until you correct the error.
A spousal IRA allows both spouses to maximize their contributions to the traditional IRA, even if one spouse doesn't work or has very little qualifying income. In the case of IRA contributions, the amount of the savings credit is 50%, 20% or 10% of your contributions, depending on your adjusted gross income. In addition, the IRS considers retirement disability benefits as earned income until you reach the age when you could have received a pension or annuity if you hadn't had a disability. If you (and your spouse, if you are married) are covered by an employer-sponsored retirement plan, the traditional IRA tax deduction may be limited based on your modified adjusted gross income (MAGI), which is your income, before subtracting the interest tax deduction on student loans and other tax deductions.
You can contribute pre-tax money and enjoy tax-free growth, but you pay taxes when you withdraw your funds during retirement.
