IRA or individual retirement accounts can be vital as a long-term savings tool for individuals with earned income. The IRS evaluates and updates new limits and requirements for IRA contributions annually.

IRA Overview

IRAs are retirement tools designed to offer long-term savings with tax advantages. While anyone with an earned income can open an IRA account, it is primarily beneficial to self-employed people who do not have access to workplace retirement plans like a 401(k).

Before contributing to an IRA, consider their contribution, age, and income limits to avoid mistakes that cost you additional yearly taxes.

2024 IRA Contribution and Income Limits

The contribution limit for traditional and Roth IRAs will increase to $7,000 in 2024.

Individuals aged 50 and above are allowed an additional catch-up contribution of $1,000.

Self-employed individuals, freelancers, and small business owners employing others can contribute to Employer-sponsored SEP IRAs.

As a small business owner, you can contribute to an Employer-sponsored SEP IRA up to 25 percent of the employee's income or a maximum of $69,000, whichever is less.

A self-employed person's contribution to SEP-IRA is limited to 25% of their net income.

With IRAs, you can contribute up to what you earn. That means if your 2024 taxable income is $6,000, you cannot save the maximum contribution limit of $7,000.

In addition, if you have contributed to a traditional and a Roth IRA account, the total contribution limit for both accounts cannot exceed the $7,000 limit.

Additionally, there are income limits to determine your eligibility to make contributions in both traditional and Roth IRAs.

Roth IRA Limits for 2024

Roth IRAs are retirement accounts where you can contribute after-tax income. Your contribution and income grow tax-free, and you enjoy tax-free retirement distribution.

For 2024, the income phase-out ranges are as follows:

• For single individuals and heads of household, the phase-out is between $146,000 and $161,000.
• The income phase-out ranges between $230,000 and $240,000 for married couples filing jointly.
• The phase-out remains between $0 and $10,000 for married couples filing separately.

Traditional IRA Limits for 2024

Your contribution to a traditional IRA is tax deductible in the year you contribute. However, when you're a married couple filing jointly, and either you or your spouse contributes to a 401(k) or another retirement plan at work, the deductibility of your contribution may be limited or phased out depending on your income.

When a retirement plan at work does not cover you or your spouse, the phasing out of the deduction does not apply.

Here are the phase-out income ranges for 2024:

• For single taxpayers with workplace retirement plans, the phase-out range lies between $77,000 and $87,000.
• For married couples filing jointly, and the spouse contributing to the IRA uses a workplace retirement plan, the phase-out ranges between $123,000 and $143,000.
• For a married couple filing jointly, and the spouse contributing to an IRA doesn't have a workplace retirement plan and is married to a spouse who does, the phase-out ranges between $230,000 and $240,000.
• The phase-out remains between $0 and $10,000 for married couples filing separately.

Types of IRAs

IRAs are of the following types:

• Traditional IRAs
• Roth IRAs
• Simple IRAs
• SEP (Simplified Employee Pension) IRAs
• Self-Directed IRAs
• Nondeductible IRAs
• Spousal IRAs

While individuals can contribute to traditional and Roth IRAs, self-employed people, and small business owners can secure their retirement through SEP and Simple IRAs.

With IRAs, you can enjoy additional opportunities to earn more for your retirement.

Individuals can review the November 1, 2023 announcement issued by the IRS for additional information.