Investing

How Much Can You Put in an IRA This Year?

Published on December 2, 2017

If you have an IRA, or are considering opening one, you might be wondering how much you can (and should) be putting in every year. And it’s a good question! Both traditional and Roth IRAs have set contribution limits, as well as other guidelines, and these differ from the rules for 401(k)s and other retirement accounts.

Here’s what you need to know about how much you can contribute to your IRA:

How much can you contribute to an IRA each year?

If you’re younger than 50, you can contribute a maximum of $5,500 annually to either a traditional IRA or a Roth IRA. (Here’s a breakdown of the difference between the two.) After 50, you’re allowed to make “catch-up” contributions, so the cap goes up to $6,500 a year. Once you reach the age of 70.5, you can no longer make regular contributions to a traditional IRA; there’s no age limit for a Roth IRA.

Limits for Roth IRA and traditional IRA contributions 2017:

• Under age 50: $5,500

• Age 50 or older: $6,500

Of course, because nothing about retirement planning is that simple, there are a few exceptions to the contribution limits. If you make less than the limit ($5,500) in taxable income, you can only contribute up to that amount. On the other end of the spectrum, if you make too much, you won’t be able to contribute to a Roth IRA, or may only be able to contribute a reduced amount.

For 2017, if you’re single, you could put in a reduced amount if you made between $118,000 and $133,000; above that, you couldn’t contribute anything. For a married person filing jointly, you could contribute a reduced amount if you made between $186,000 and $196,000. (The limits are based on modified adjusted gross income.) Still unsure which IRA account you can contribute to? Use SoFi’s IRA Calculator to help you make an informed decision.

But how much should you be contributing?

Assuming you are aggressively saving for retirement, and if you can afford it, you should probably contribute the maximum allowed every year. Retirement is likely the single biggest financial goal you’ll ever have, and it’ll take decades to reach. In many cases, you’ll want to make sure you’re on track for saving for your golden years before putting money toward most other financial goals, such as saving for your children’s college education.

Even if you can’t put $5,500 each year into your IRA, get in the habit of contributing something annually. Starting early lets you take advantage of the power of compound interest. If you put in $1,000 every year starting at age 22, assuming returns of 7% (the average inflation adjusted return on the S&P 500 from 1950-2009), you’d have $172,500 by the time you’re 60.

Once you contribute, can you withdraw from from an IRA before retirement?

Not necessarily. With a Roth IRA, you can always withdraw your contributions with no penalties or taxes. You can take out up to $10,000 from a traditional IRA—or in earnings from a Roth IRA—without penalties for expenses associated with buying your first home. You can also withdraw funds penalty-free for qualifying medical or educational expenses. And once you hit the age of 59.5, distributions will always be penalty-free.

Are there ways to get around IRA contribution limits?

Sometimes. There’s no limit to how much you can put into an IRA when you’re rolling over funds from a 401(k) or 403(b) account.

Some people also use what’s called a “backdoor Roth IRA” to get around the income limits to contributing to a Roth IRA. This involves contributing the maximum to a Traditional IRA, then converting it into a Roth. (There’s no income limit for a conversions.) This can be tricky, though, so consult a tax professional so you understand all the tax implications.

Yes, all the rules of IRAs can be complicated, but investing in one doesn’t need to be. SoFi Wealth is all about empowering you and your financial future, and we’re here to help. Need advice on IRAs, or saving for retirement in general? Schedule a free personal consultation with one of our licensed financial advisors who can answer your questions.

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SoFi Wealth, LLC does not render tax or legal advice. Individual circumstances are unique and we recommend that you consult with a qualified tax advisor for your specific needs.

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