Even if you wanted to contribute unlimited amounts to your retirement accounts, the Internal Revenue Service (IRS) wouldn’t let you. In return for the tax breaks and tax-advantaged savings, the IRS sets annual contribution limits for Roth IRAs, traditional IRAs, and 401(k)s.
- For 2019, you can contribute up to $6,000 to a Roth or traditional IRA. If you're age 50 or older, the limit is $7,000.
- The most you can contribute to a 401(k) is $19,000, or $25,000 if you're age 50 or older.
- If you have a 401(k) match, the combined limit is $56,000, or $62,000 if you're age 50 or older, or 100% of your salary if it's less than the dollar limits.
- Contribution limits are per taxpayer—not per account.
Types of Contributions
Each retirement plan has two different types of contributions that are based on your age. The first is a “regular contribution” that applies to people younger than 50.
You can make a catch-up contribution when you're age 49 if you'll turn 50 by the end of the year.
The second is a “catch-up contribution,” an extra amount available to those age 50 or older. These investors are closer to retirement and have less time for their assets to grow. So, the IRS allows a larger contribution in the hope that investments will “catch up.”
Roth IRA Contribution Limits
For 2019, the most you can contribute to a Roth IRA is:
- $6,000 if you're younger than age 50
- $7,000 if you're age 50 or older
You need "earned income" from wages and other sources to contribute to an IRA. And those earnings must match or exceed your contribution. For example, if you earned $4,000, that's the most you can contribute to a Roth (or traditional) IRA.
Which Contributions Are Not Counted in the Limit?
While there are limits to the amount of money you can contribute in a single year to a Roth IRA, there are also exclusions that are not bound by the yearly cap.
For example, the annual contribution limits don’t include investments that are rolled over from another Roth IRA account or funds that are converted from a traditional IRA. The same exemptions apply to funds that are rolled over from a qualified retirement plan, like a 401(k).
Roth IRA Income Limits
Unlike traditional IRAs and 401(k)s, Roth IRAs have income limits that determine how much you can contribute. If you make too much money, you can't contribute to a Roth IRA at all.
If you make too much money to contribute directly to a Roth IRA, you can use the "backdoor" Roth IRA strategy.
You can contribute the full amount if you’re married filing jointly and your modified adjusted gross income (MAGI) is less than $193,000, or less than $122,000 if you're single.
Married joint filers with a MAGI of $193,000 to $203,000 per year, and single filers with a MAGI of $122,000 to $137,000, can contribute, but at a reduced amount.
If you’re married filing jointly and your MAGI is more than $203,000, or if you’re single and it’s over $137,000, you can’t contribute at all to a Roth IRA. The IRS has a worksheet to walk you through whether or not you can contribute.
Here’s a summary of the Roth IRA income limits for 2019:
|Roth IRA Income Limits|
|If your filing status is…||And your modified AGI is…||You can contribute…|
|Married filing jointly or qualifying widow(er)||Less than $193,000||Up to the limit|
|More than $193,000 but less than $203,000||A reduced amount|
|$203,000 or more||Zero|
|Single, head of household, or married filing separately and you didn't live with your spouse at any time during the year||Less than $122,000||Up to the limit|
|More than $122,000 but less than $137,000||A reduced amount|
|More than $137,000||Zero|
|Married filing separately and you lived with your spouse at any time during the year||Less than $10,000||A reduced amount|
|$10,000 or more||Zero|
Traditional IRA Contribution Limits
For traditional IRAs, the contribution limits are the same as they are for Roth IRAs. For 2019, that's:
- $6,000 if you're younger than age 50
- $7,000 if you're age 50 or older
Unlike Roth IRAs, your income doesn’t affect the amount you can contribute to a traditional IRA. But like Roth IRAs, your income has to match or exceed the amount you contribute.
Traditional IRA Income Limits
If you have a traditional IRA, the income limits have to do with whether you can deduct your contributions on your income tax return.
Remember, a traditional IRA (unlike a Roth) is funded with pre-tax dollars, so you can usually write off the contribution the year you make it. (If you can’t deduct your contributions, a traditional IRA becomes a lot less attractive.)
Your income and whether you and your spouse have retirement plans at work determine if you can deduct traditional IRA contributions.
If you’re single and have no workplace plan (or you’re married and neither of you has one), then you can fully deduct your contribution, regardless of your income. However, if you don’t have a plan at work but your spouse does, you can deduct the full amount if you’re married filing jointly and your MAGI is $193,000 or less. It phases out above $203,000.
The numbers change if you have a workplace plan. Married couples who file jointly can take the full deduction if they make less than $103,000 for 2019. If you make more than $103,000 and up to $123,000, you can take a partial deduction. Above $123,000, and you can’t deduct anything.
Single filers can take a full deduction if they make $64,000 or less for 2019, a partial deduction if they make more than $64,000 but less than $74,000, and nothing if they make anything more than $74,000.
Here's a rundown of traditional IRA income limits for 2019:
|Traditional IRA Income Limits|
|If your filing status is…||And your modified AGI is…||Then you can take…|
|Single, head of household, qualifying widow(er), married filing jointly or separately and neither spouse is covered by a plan at work||Any amount||A full deduction up to the amount of your contribution limit|
|Married filing jointly or qualifying widow(er) and you're covered by a plan at work||$103,000 or less||A full deduction up to the amount of your contribution limit|
|More than $103,000 but less than $123,000||A partial deduction|
|$123,000 or more||No deduction|
|Married filing jointly and your spouse is covered by a plan at work||$193,000 or less||A full deduction up to the amount of your contribution limit|
|More than $193,000 but less than $203,000||A partial deduction|
|$203,000 or more||No deduction|
|Single or head of household and you're covered by a plan at work||$64,000 or less||A full deduction up to the amount of your contribution limit|
|More than $64,000 but less than $74,000||A partial deduction|
|$74,000 or more||No deduction|
|Married filing separately and either spouse is covered by a plan at work||Less than $10,000||A partial deduction|
|$10,000 or more||No deduction|
More Details on IRA Contributions
A note about Roth and traditional IRA contributions: The limit is per taxpayer, not per account. That means you can’t contribute $6,000 to a Roth IRA and $6,000 to a traditional IRA in 2019.
Instead, you can contribute the total amount, split across the different IRAs as you see fit. In 2019, for example, you could contribute $4,000 to a Roth IRA and $2,000 to a traditional IRA.
Spousal IRAs are regular IRAs that married couples who file jointly can use.
Note that married couples can also contribute in the same amounts to a spousal IRA for a spouse who doesn't work for pay, as long as one spouse earns enough income to cover both contributions.
401(k) Contribution Limits
Like traditional IRAs, 401(k)s don't have income limits that determine your eligibility to contribute. And you can stash away a lot more money each year in a 401(k).
For 2019, the 401(k) contribution limit is:
- $19,000 if you're under age 50
- $25,000 if you're age 50 or older
While 401(k) contributions reduce your taxes, you don't actually claim a deduction when you file. That's because your contributions come directly out of your paycheck, so they're made with pre-tax dollars. This lowers your taxable income for the year, which saves you money at tax time.
401(k) Match Limits
The biggest benefit of a 401(k) plan is the employer match. Typically, the match is a percentage of your contribution, up to a certain amount of your salary.
For example, your employer may match 50% of your contributions, up to 5% of your salary. So if you earn $100,000 and contribute $10,000 to your 401(k), your employer would kick in an extra $5,000.
If your employer offers a match, be sure to contribute enough to take advantage of the full match.
Any match your employer provides doesn't count toward your annual contribution limit. But the IRS does limit the total amount that can go into your 401(k) each year.
For 2019, the combined contribution limit (your contribution plus the match) for a 401(k) is:
- $56,000 if you're under age 50
- $62,000 if you're age 50 or older
- 100% of your salary if it's less than the dollar limits
Ineligible (Excess) IRA Contributions
There are serious repercussions if you invest more in an IRA than you're allowed to. You’ll be penalized with a 6% excise tax on any excess contribution, each year until you fix the mistake.
Most people who make ineligible IRA contributions do so by mistake, such as when:
- You earn more money and fall outside the income eligibility range
- You forget you contributed earlier that year
- You contributed money that doesn’t count as earned income
- You contributed more than your earned income for the year
How To Fix Excess IRA Contributions
If you realize you’ve contributed too much money to an IRA or a combination of several IRA accounts, there are several ways you can reverse the excess contributions. But you have to act quickly: There are strict deadlines if you want to avoid penalties.
If you contribute too much to an IRA, you'll owe a 6% penalty each year until you fix the mistake.
The best approach: Withdraw that money within the same year before you file your income tax return. The IRS treats any money you take out within that deadline as money you never contributed in the first place. Any earnings from your excess contributions must also be withdrawn in the same year, as well.
If you find the mistake after you’ve filed income taxes for the year, you can remove the excess contribution within six months and file an amended return by Oct. 15.
Alternatively, you can reduce the following year’s contribution by the excess amount. For example, if you contributed $8,000 by mistake one year, you can reduce your contribution by $2,000 (the excess amount) the next year.
If you carry forward the excess like this, however, you’ll be on the hook for that 6% penalty until the excess is absorbed.
Excess 401(k) Contributions
Even though your employer deducts your contributions to a 401(k), it's still possible to invest too much. This can happen when:
- You switch employers and retirement plans in the same year and give too much too each plan
- You have two jobs and two plans and don't realize the limit is per taxpayer, not per account
- You get a pay increase (or bonus) and forget to change your contribution percentage accordingly
How to Fix Excess Deferrals
If you overcontribute to your 401(k), contact your plan administrator right away and tell them you've made an "excess deferral." Ideally, this will happen by March 1 following the year you contributed too much. The excess amount and any related earnings should be returned to you by April 15.
The earnings must be included in your taxable income for the year, and your employer may need to amend your W-2 to show the returned amount as wages.
If the excess amount isn't returned to you by April 15, you could end up paying taxes on the amount twice: once in the year you contributed too much, and once when the excess amount is returned to you.
The Bottom Line
You can only invest so much each year in a 401(k) plan and an IRA. But, if you have the resources to do so, you can contribute to both.
While you can only add up to $6,000 (or $7,000 if you're age 50 or older) to your combined IRAs, that limit doesn't affect your 401(k) contributions. Likewise, you can fund your 401(k) up to the limit--$19,000 or $25,000, depending on your age—and still max out your IRA.
If you can't swing the full contributions to both, a good strategy is to max out your 401(k) to the point that you get your full employer match, then focus on your IRA. If you have any money left over, you can add more to your 401(k).