2020 IRA Contribution Limits

October 23, 2019

Considering historical projections, IRA contribution limits for 2020 are unlikely to rise much. An Individual Retirement Account (IRA) is a common way to save for retirement. But there are limits to how much you can save each year in all of your IRA accounts combined. The Internal Revenue Service sets these limits, and they change each year. We looked at current and past limits to give you 2020 IRA contribution limits projections.

Many people choose to contribute to an IRA for the tax benefits. Contributions to an IRA are generally tax-deductible, and typically not taxed until you take a distribution. The IRS will set the 2020 IRA in the late fall of 2019, but you can use our projections to start retirement planning now.

2020 IRA Contribution Limits

The IRS calculates maximum IRA contributions based on several factors. Unlike 401(k) contributions and other types of retirement accounts, IRA limits are relatively stable. The legal limits stayed the same from 2015 through 2018, with a slight increase in 2019. Most financial experts don’t expect the IRA contribution limit to change in 2020. Therefore, we project that the 2020 IRA contribution limit will be:

  • $6,000 total contribution
  • $7,000 total contribution, for people ages 50 and older

IRA Contribution Limits

What You Need to Know About 2020 IRA Contribution Limits

The IRS has several regulations regarding IRAs and contribution limits. For most people, the guidelines are fairly straightforward. If you have unique employment or tax filing circumstances, there may be additional rules that apply to you. Be sure to review these rules with a tax professional to ensure that you make the most of your IRA while avoiding taxes or penalties.

Salary Limits

An individual can’t contribute more than their annual salary to an IRA. The maximum yearly contribution to an IRA is currently $7,000 for those over the age of 50. So, if you are in that age range and earn less than $7,000 total in a year, you can put only up to the amount of your earned income into an IRA.

Traditional vs. Roth IRA Contribution Limits

Contribution limits are the same for both traditional and Roth IRAs, except in certain situations. Some very high salary earners may not qualify to contribute as much, or anything at all, to a Roth IRA. There is no upper compensation limit for traditional IRAs, but if you also have a Roth account, the $6,000 or $7,000 limit applies to the two accounts combined.

Age Limits on IRA Contributions

You can no longer make regular contributions to a traditional IRA the year you turn 70 ½. But you can make rollover contributions to that type of account. Contributions to a Roth IRA are allowable after age 70 ½.

Spousal IRA Contributions

If you have a spouse and you both receive compensation for work, you can both have your own IRA. Each partner can contribute the maximum amount to your own accounts. If one spouse is not employed, he or she can still establish a traditional IRA. The other spouse must be working and receiving earned income totaling the contribution amounts or higher.

Broker Fees

If you pay a fee to a broker for managing your IRA, those fees count toward your annual limit.

IRA Historic Contribution Limits

IRAs were legally established in 1974. Every year since, the IRS has set limits for how much an individual can contribute to their IRA accounts. The chart below shows contribution limits for the past several years, with projected IRA limits for 2020.

IRA Contribution Limits by Year
Year Total Contribution Age 50+ Contribution Limit
2020* $6,000 $7,000
2019 $6,000 $7,000
2018 $5,500 $6,500
2017 $5,500 $6,500
2016 $5,500 $6,500
2015 $5,500 $6,500
* Projected Figures

When 2020 IRA Contribution Limits Go Into Effect

Contribution periods for IRA and other retirement accounts follow the tax year calendar from January 1 to December 31 every year. You can make traditional or Roth IRA contributions up to the 2019 limit until December 31 of the current year. After that, you can start the cycle again and contribute up to the new 2020 limits.

What Happens If You Contribute Too Much to an IRA?

There are tax penalties if you exceed the contribution limit for an IRA or other retirement savings account. IRA contributions over the annual limit are taxed at a 6% rate as long as they remain in your account. To avoid this tax, you’ll need to withdraw the excess amount as well as any income you earned from that excess contribution.

Concluding Thoughts on IRA Contribution Limits

Expect the IRS to announce in October or November whether 2020 IRA contribution limits will increase or stay the same as 2019 limits. In the meantime, consider other retirement accounts such as a 401(k) and make a plan to maximize your savings.