IRA Contribution Limits

How Much Can You Contribute to an IRA?
For 2023, the maximum contribution to an IRA is $6,500, or $7,500 if you’re age 50 or older. Contribution limits for 2019-2022 were $6,000 (or $7,000 if age 50 or older), while limits for 2015-2018 were $5,500 (or $6,500 if age 50 or older). Keep in mind that Roth IRA contributions may be limited based on your income and filing status.

Are IRA Contributions Tax Deductible?
Traditional IRA contributions may be fully deductible if neither you nor your spouse is covered by an employer-sponsored retirement plan. If either spouse participates in a retirement plan at work and your income exceeds certain thresholds, your deduction may be partially limited or not allowed at all. Roth IRA contributions are never deductible.

Can You Contribute to an IRA if You Have a Workplace Retirement Plan?
Yes, you can still contribute to both traditional and Roth IRAs if you’re covered by a workplace retirement plan, such as a 401(k), SEP IRA, or SIMPLE IRA. However, your ability to deduct contributions to a traditional IRA depends on your income level.

Spousal IRA Contributions
If you file a joint tax return and have taxable compensation, both you and your spouse can contribute to separate IRAs — even if only one spouse earns income. The combined contributions cannot exceed your joint taxable income or twice the annual contribution limit.

Reporting Nondeductible Contributions
Nondeductible contributions to a traditional IRA must be reported on Form 8606. However, Roth IRA contributions are not reported on this form.

IRA Withdrawals and Distributions

Withdrawing Money While Still Working
You can withdraw funds from your traditional IRA, SEP IRA, or SIMPLE IRA at any time. However, withdrawals before age 59½ may be subject to a 10% early withdrawal penalty in addition to regular income tax. SIMPLE IRA withdrawals made within the first two years of participation may be subject to a 25% penalty.

Divorce-Related Distributions
IRA distributions to satisfy a divorce court order are still subject to the 10% early withdrawal penalty unless the funds are transferred directly to your former spouse’s IRA under a divorce or separation agreement.

Reporting Early Withdrawals
Early withdrawals are reported on Form 1040, and you may need to attach Form 5329 if you’re subject to additional taxes.

Required Minimum Distributions (RMDs)
If you turned 70½ in 2019, you must take RMDs starting at that age. However, under the SECURE Act, those who reach 70½ in 2020 or later must begin RMDs at age 72. RMD amounts are calculated using IRS life expectancy tables and must be reported on your tax return.

Qualified Charitable Distributions (QCDs)

If you’re 70½ or older, you can make a tax-free charitable donation directly from your IRA to a qualified charity. This distribution can count toward your RMD amount for the year. QCDs are reported on Form 1099-R and must be indicated on your tax return with the notation “QCD”.

IRA Rollovers and Conversions

IRA-to-Employer Plan Rollovers
You can roll over traditional IRA funds into a qualified employer plan like a 401(k), if the plan allows it. However, Roth IRAs can only be rolled over to another Roth IRA.

Workplace Retirement Plan to IRA Rollovers
Most distributions from workplace retirement plans can be rolled over into an IRA, except for:

• Required minimum distributions (RMDs)
• Hardship withdrawals
• Loans treated as deemed distributions
• Series of equal periodic payments

You typically have 60 days to complete a rollover to avoid taxes and penalties.

Roth Conversions
You can convert a traditional IRA to a Roth IRA through:

• Rollover (indirect transfer)
• Trustee-to-trustee transfer
• Same trustee transfer

Conversions are taxable but not subject to the early withdrawal penalty. Report conversions on Form 8606.

Recharacterizations

What Is a Recharacterization?
A recharacterization allows you to change a regular IRA contribution from a Roth IRA to a Traditional IRA, or vice versa, by transferring funds between accounts. However, conversions from a traditional IRA to a Roth IRA made after 2017 cannot be recharacterized.

IRA Investments

Permitted Investments
IRA funds can be invested in:

• Stocks
• Bonds
• Mutual funds
• ETFs
• Certain precious metals

Prohibited Investments
IRAs cannot be invested in:

• Life insurance
• Collectibles (art, rugs, antiques, gems, coins, or alcohol)

Gold and Bullion Investments
Certain bullion investments are permitted but must be stored by a bank or IRS-approved trustee — not in your home.

Deducting IRA Losses
Losses in an IRA are not deductible on your tax return while the account remains open.

Final Thoughts

Understanding the contribution limits, tax deductions, and withdrawal rules for IRAs is essential to making the most of your retirement savings. Whether you’re rolling over funds, making charitable contributions, or considering a Roth conversion, knowing the rules can help you avoid unnecessary taxes and penalties.

For personalized guidance on IRA strategies, reach out to a qualified tax professional to ensure your retirement plan aligns with your financial goals.