Traditional and Roth IRAs are the most popular types of self-directed accounts held at IRAR Trust. Generally, our clients bring their existing retirement savings (either through a rollover from an old 401(k) plan or transferring existing IRA funds) from a large institution like Fidelity, Schwab, or Wells Fargo, since investing in alternative assets such as real estate is generally not allowed with these establishments.
The investments then grow tax-free or tax-deferred (depending on the account in which account they are held), providing a variety of options most investment providers can’t meet.
If you’re still working, make sure you are taking full advantage of the opportunity to save for your retirement by contributing to an IRA. You can make contributions to self-directed IRAs all year round (not to exceed the amount allowed by the IRS, listed below). If you haven’t made a contribution for the 2024 tax year, you have until the tax deadline to make one. Consider contributing to your self-directed IRA if you:
- want to continue to build wealth in your self-directed IRA
- want to make more alternative investments
- need liquidity/cash in your account to cover IRA expenses and don’t want to liquidate assets
- want to get a tax-deduction (if you qualify)
- want to increase the possibility of early retirement
There are many more reasons why you should consider making a contribution, these are just a few most commonly cited by our clients.
Still thinking about your potential contribution? Let’s go over the limits and rules.
2024-2025 IRA Contributions Limits
The deadline for 2024 tax year contributions to a Traditional or Roth IRA is April 15th. You can file a tax extension (making the extension deadline October 15), if needed. However, filing an extension on your taxes does not extend the contribution deadline— this extension applies to the filing of tax paperwork only.
Traditional and Roth IRA contribution limits for 2024 and 2025 are the same. The contribution maximum for individuals under 50 years of age is $7,000. If you are 50 or older, you can make an additional $1,000 contribution (called a catch-up contribution) totaling $8,000 for 2024 and 2025. To make this contribution you (and/or your spouse) must have earned income. Your (or your income combined with your spouse’s) taxable earned income for the tax year cannot be less than your contribution limit.
For example, if you are 45 and earned $5,000 for the tax year 2024, you cannot make the maximum contribution of $7,000.
Another example: Jessica, aged 52, is married with no income. She and her husband, Jose (53 years old) reported a $160,000 income on their 2024 joint return. Jessica and Jose may each contribute $7,000 to their IRAs ($7,000 plus an additional $1,000 contribution for age 50 and over). Since the joint earned income exceeds the sum of their contributions and both are over 50 years of age, they were able to put away $16,000 for their future retirement.
Maximum Roth IRA Contribution Limits - AGI
Your Roth contribution may have additional limits depending on your filing status and income. For 2024, your Roth IRA contribution limit is reduced (phased out) in the following situations.
- Your filing status is married filing jointly or qualifying surviving spouse and your modified AGI is at least $230,000. You can’t make a Roth IRA contribution if your modified AGI is $240,000 or more.
- Your filing status is single, head of household, or married filing separately and you didn’t live with your spouse at any time in 2024 and your modified AGI is at least $146,000. You can’t make a Roth IRA contribution if your modified AGI is $161,000 or more.
- Your filing status is married filing separately, you lived with your spouse at any time during the year, and your modified AGI is more than $0. You can’t make a Roth IRA contribution if your modified AGI is $10,000 or more.
For 2025, similar rules apply, but the limits are slightly higher:
- Your filing status is married filing jointly or qualifying surviving spouse and your modified AGI is at least $236,000. You can’t make a Roth IRA contribution if your modified AGI is $246,000 or more.
- Your filing status is single, head of household, or married filing separately and you didn’t live with your spouse at any time in 2024 and your modified AGI is at least $150,000. You can’t make a Roth IRA contribution if your modified AGI is $165,000 or more.
- Your filing status is married filing separately, you lived with your spouse at any time during the year, and your modified AGI is more than $0. You can’t make a Roth IRA contribution if your modified AGI is $10,000 or more.
There are no income limits for Traditional IRAs, but there are income limits for tax-deductible contributions. Please see the IRS table for additional information.
Remember that Traditional and Roth IRAs are for individuals. For small businesses, you should look into a SEP IRA or a SIMPLE IRA.
IRA Tax Deductions
You can contribute to a Traditional or Roth IRA even if you participate in a plan through your employer or business (401(k), SIMPLE, SEP, and so on). However, your tax deduction may be limited if you (or your spouse) are participating in a plan at work and your income exceeds certain levels. We recommend that you discuss your unique situation with a tax or financial professional.
For Traditional IRAs, depending on your modified adjusted gross income (MAGI), your contributions may qualify as a deduction on your federal income tax return. If you or your spouse are covered by a retirement plan at work and your income exceeds certain levels, your deduction may be limited. But if you are not covered by a plan at work, your deduction may be fully allowed. See IRS IRA Deduction Limits for more information.
Unfortunately, you cannot get a tax deduction for contributions to a Roth IRA, but remember that earnings and withdrawals are generally tax-free. This is one of the tradeoffs with opening a Roth IRA.
Excess IRA Contributions & Penalties
If you contribute more than the limit you will be subject to tax penalties. To avoid excess contribution penalties, withdraw the excess contribution from your IRA before the tax deadline, along with any income earned on the excess contribution. You must complete Form 5329, which you’ll use to calculate a 6% penalty tax on the excess contribution. This penalty tax will continue to be assessed every year on ALL excess contributions until you withdraw the excess contributions. But first, talk to a tax professional about your tax filing status— they may be able to help.
If you have questions (or just would like more information!) about self-directed IRAs and how to get started, please reach out to us. We’d be happy to help you plan for your financial future.
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Traditional IRA and Roth IRA Contribution Limits 2024-2025 FAQs
When is the Roth IRA contribution deadline?
For the tax year 2024, the Roth IRA contribution deadline is April 15, 2025. The maximum contribution to a Traditional IRA or Roth IRA is $7,000 for 2024 and 2025. If you are 50 or older, you can make an additional $1,000 contribution totaling $8,000.
Who is eligible to contribute to an IRA?
As of December 2019, there is no age limit to make contributions if you (or your spouse) have earned income, are married, and filing jointly. Earned income includes money from wages when you work for someone or from self-employment income.
What is a Roth IRA?
A Roth IRA is a special type of individual retirement account (IRA) in the United States that lets you grow your money tax-free and withdraw it tax-free in retirement, under certain conditions. Unlike traditional IRAs where you contribute pre-tax dollars and get a tax deduction upfront, you contribute to a Roth IRA with money you've already paid taxes on. This means you won't get a tax break right away, but it also means your money can grow tax-free.
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