2021 Contribution Limits for Traditional and Roth IRAs, by Marvin Dutton

This article was originally published here

2021 Contribution Limits for Traditional and Roth IRAs 

The contribution limit for Roth and traditional IRAs for 2021 is $6,000, or $7,000 if the individual is aged 50 or above; the numbers remain unchanged from 2020. But certain restrictions can affect how much you can save or the tax you can deduct on your returns. Investors can contribute to their IRA account for the 2021 tax year from January 1, 2021, until April 15, 2022.

Only “Earned Income” Can be Contributed

To contribute to an IRA, you must have earned income. There are typically two ways an individual can get earned income; you can either work for someone else who pays you or own a business or farm.

Wages, salaries, bonuses, tips, commissions, and income from self-employment are classified as earned income. Additionally, the IRS considers disability retirement benefits as “earned income” until the individual reaches an age when he/she should have received a pension or annuity if they didn’t have a disability.

There are, however, certain types of income that don’t count as “earned income,” including child support, alimony, interest, and dividends from investments, income from rental properties, retirement income, unemployment benefits, Social Security, and income received while an inmate is in a penal institution.

If your earned income for the year is less than the contribution limit, you can only contribute to that amount. For instance, if you earned 4,000 for the year, you can only contribute up to $4,000 to your IRA.

Spousal IRAs

If an individual doesn’t have earned income, but their spouse does, they can open a spousal IRA, which allows a person with earned income to make contributions on behalf of their spouse who doesn’t have earned income. The spousal income can be either a traditional or Roth IRA.

To be eligible, the couple must be married and file joint tax returns. One of the spouses must also earn enough “earned income” to cover for both contributions.

2021 Roth IRA Income Limits

While anyone can make contributions to a traditional IRA regardless of their income, you can’t contribute to a Roth IRA if you make too much money, except if you use what’s called a “backdoor” Roth IRA.

2021 Traditional IRA Deduction Limits

There are no contribution limits to traditional IRAs, except if your spouse has a workplace 401(k) or some other workplace retirement plan. Here’s a breakdown of the 2020 IRA deduction.

These categories of people are exempted from any deductions:

  • Married couples filing jointly or as a qualifying widow(er) with modified AGI of $125,000 or more and covered by a workplace plan.
  • Married filing jointly with modified AGI of $208,000 or more and your spouse is covered by a workplace plan.
  • Single or head of the household with modified AGI of $76,000 or more, and you’re covered by a workplace plan.
  • Married filing separately with modified AGI of $10,000 or more and either spouse is covered by a workplace plan.

Modified Adjusted Gross Income (MAGI)

The Modified AGI can be close or identical to your adjusted gross income. To get this figure, the IRS takes your AGI and makes certain deductions, including rental losses, passive income or loss, student loan interest, qualified tuition expenses, tuition and fees, losses from a publicly traded partnership, IRA contributions, and Social Security.

To calculate MAGI, first know your AGI. It’s on line 8b of Form 1040. Then use Appendix B, worksheet one from the IRS publication 590-A, to obtain your MAGI.

Making Excess IRA Contributions

While it’s good to max out your contributions, it is essential not to go overboard. If you exceed the IRA limit, the excess contribution will be charged a 6% penalty. This is why it is crucial always to pay attention to the contribution limits. 

The Saver’s Credit

Low- to moderate-income earners may be eligible for a savers’ credit, which offers a dollar to dollar reduction of the taxes you owe. If eligible, you can earn a credit of 10% to 50% of your contributions. 


Contribution limits apply to various types of IRAs. If you are self-employed or a business owner, the contribution limit for SEP IRAs and Solo 401(k) plans is 25% of yearly compensation up to $58,000. If your employer has a match plan, you can take salary deferrals up to $13,500 for 2021.


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