Definition
Individual retirement arrangement (IRA) is an umbrella term that covers individual retirement account and individual retirement annuity. These are retirement savings vehicles established by individual taxpayers.
There are several versions of an individual retirement arrangement,
(a) traditional IRAs, where assets accrue earnings on a tax-deferred basis and distributions are treated as ordinary income,
(b) Roth IRAs, where assets accrue on a tax-deferred basis, but qualified distributions are tax-free
(c) SEP IRAs, which are established and funded by business owners/employers for their employees. The funding vehicle for a SEP IRA is a traditional IRA and
(d) SIMPLE IRAs, are established and funded by business owners/employers for their employees. Employees may also make salary deferral contributions to SIMPLE IRAs, and versions of SEPs that are referred to as SARSEPs.
- Individual retirement account is the ‘account’ version of an individual retirement arrangement. The account can be established at a bank, credit union, brokerage firm, savings & loan, or other financial institution that satisfies the requirements established under the tax code IRC § 408(n)
- Individual retirement annuity is the annuity-contract version of an individual retirement arrangement, issued by an insurance company. IRC § 408(b)
Referring Cite
IRC § 408 (a), IRC § 408 (b), IRS Publication 590
Additional Helpful Information
Individuals may contribute up to 100% of their taxable compensation/income up to the dollar limit that is in effect for the year to their traditional and/or Roth IRAs. Individuals who reach age 50 by the end of the year may contribute additional amounts referred to as ‘Catch-up’ contributions.
The dollar limits for 2005 and after are as follows:
|
Year |
IRA contribution limit |
Catch-up contribution limit |
| 2006 | $4,000 | $1,000 |
|
2007 |
$4,000 |
$1,000 |
|
2008 |
$5,000 |
$1,000 |
|
2009 |
$5,000 |
$1,000 |
|
2010 |
$5,000 |
$1,000 |
|
2011 |
$5,000 |
$1,000 |
|
2012 |
$5,000 |
$1,000 |
|
2013 |
$5,500 |
$1,000 |
|
2014 |
$5,500 |
$1,000 |
|
2015 |
$5,500 |
$1,000 |
|
2016 |
$5,500 |
$1,000 |
|
2017 |
$5,500 |
$1,000 |
|
2018 |
$5,500 |
$1,000 |
|
2019 |
$6,000 |
$1,000 |
| 2020 | $6,000 | $1,000 |
| 2021 | $6,000 | $1,000 |
| 2022 | $6,000 | $1,000 |
- An individual can split the annual limit between a traditional and a Roth IRA, or contribute the entire amount to either. Eligibility requirements apply to Roth IRA contributions.
- These contributions must be made in cash
Roth IRA Contributions Eligibility Limits
Individuals may contribute to a Roth IRA only if their MAGI does not exceed a certain amount. The limits are as follows:
|
Tax Filing Status |
2022 MAGI |
2021 MAGI |
Allowed contribution |
|
Single or Head of Household |
$129,000 or less |
$125000 or less |
100% |
|
$129,000 to $144,000 |
$125,000 – $140,000 |
Partial |
|
|
$144,000 or more |
$140,000 or more |
None |
|
|
Married filing jointly |
$204,000 or less |
$198,000 or less |
100% |
|
$204,000 to $214,000 |
$198,000 -$208,000 |
Partial |
|
|
$214,000 or more |
$208,000 or more |
None |
|
|
Married filing separately |
Less than $10,000 |
Less than $10,000 |
Partial |
|
$10,000 or more |
$10,000 or more |
None |
Traditional IRA Deductibility
Individuals who are active participants are eligible to deduct their traditional IRA contributions, only if their MAGI amounts do not exceed certain limits. For details on how this works, see the article Active Participant Status–Can You Deduct Your IRA Contribution?
The MAGI that applies to each tax-filing status is as follows:
|
Tax Filing Status |
2022MAGI |
2021 MAGI |
Allowed deduction |
|
Single or Head of Household |
$68,000 or less |
$66,000 or less |
100% |
|
$68,000 – $78,000 |
$66,000 – $76,000 |
Partial |
|
|
$78,000 or more |
$76,000 or more |
None |
|
|
Married filing jointly or a qualifying widower, and active |
$109,000 or less |
$105,000 or less |
100% |
|
$109,000- $129,000 |
$105,000- $125,000 |
Partial |
|
|
$129,000 or more |
$125,000 or more |
None |
|
|
Married filing jointly. Not active, but spouse is active |
$204,000 or less |
$198,000 or less |
100% |
|
$204,000 – $214,000 |
$198,000 – $208,000 |
Partial |
|
|
$214,000 or more |
$208,000 or more |
None |
|
|
Married filing separately |
Less than $10,000 |
Less than $10,000 |
Partial |
|
$10,000 or more |
$10,000 or more |
None |
