The 2020 Roth and traditional IRA contribution limit is $6,000, or $7,000 if you're age 50 or older, remaining unchanged from 2019. But there are restrictions that could impact how much you can contribute and what you can deduct on your tax return. 

Key Takeaways

  • The 2020 combined annual contribution limit for Roth and traditional IRAs is $6,000 ($7,000 if you're age 50 or older)—unchanged from 2019.
  • Roth IRA contribution limits are reduced or eliminated at higher incomes.
  • Traditional IRA contributions are deductible, but the amount you can deduct may be reduced or eliminated if you or your spouse is covered by a retirement plan at work.
  • Lower-income taxpayers may be eligible for the Saver's Credit if they contribute to an IRA. 

2020 IRA Contribution Limits

For 2020, the most you can contribute to your Roth and traditional IRAs is a total of:

  • $6,000 if you're under age 50
  •  $7,000 if you're age 50 or older

For the 2020 tax year, you have from Jan. 1, 2020, to April 15, 2021, to contribute to an IRA. 

You Can Only Contribute "Earned Income"

You must have "earned income" to contribute to an IRA. There are two ways to get earned income: Work for someone else who pays you, or own or run a business or farm.

Earned income includes money from wages, salaries, tips, bonuses, commissions, and self-employment income. Also, the IRS considers disability retirement benefits as earned income until you reach the age you could have received a pension or annuity if you didn't have the disability.

Some types of income don't count as earned income, including:

For 2020, you can contribute up to $6,000 to an IRA, or $7,000 if you're age 50 and up. But you must have enough earned income to cover the contribution.

If your earned income for the year is less than the contribution limit, you can only contribute up to your earned income. For example, if you earned $3,000, you can contribute a maximum of $3,000.

Spousal IRAs

If you don't have earned income—but your spouse does—you can open what's called a spousal IRA. These accounts allow a person with earned income to contribute on behalf of their spouse who doesn't work for pay.

To be eligible for a spousal IRA, you must be married and file a joint tax return. 

You can structure a spousal IRA as a traditional or Roth IRA. Either way, the spouse with earned income can contribute to both spouses' IRAs, provided they have enough earned income to cover both contributions.

2020 Roth IRA Income Limits

You can contribute to a traditional IRA regardless of how much money you earn. But you're not eligible to open or contribute to a Roth IRA if you make too much money.

If you make too much money, you may still be able to contribute to a Roth IRA using a strategy called a Backdoor Roth IRA

Here's a rundown of the 2020 Roth IRA income and contribution limits, based on your filing status and modified adjusted gross income:

2020 Roth IRA Income Limits
Filing Status Modified AGI Contribution Limit
Married filing jointly or qualifying widow(er) Less than $196,000 $6,000 ($7,000 if you're age 50 or older
  $196,000 to $205,999 Reduced
  $206,000 or more Not eligible 
Single, head of household, or married filing separately (and you didn't live with your spouse at any time during the year) Less than $124,000 $6,000 ($7,000 if you're age 50 or older
  $124,000 to $138,999 Reduced
  $139,000 or more Not eligible 
Married filing separately (if you lived with your spouse at any time during the year) Less than $10,000 Reduced
  $10,000 or more Not eligible

There are still ways around the Roth IRA contribution limits. If you make a contribution to a non-deductible IRA, you can convert it to a Roth IRA. The same applies to nondeductible contributions made to a 401(k) plan.

Of course, any strategy that has tax implications should be reviewed by a qualified tax professional.

2020 Traditional IRA Deduction Limits

Unlike Roth IRAs, there are no income limits with traditional IRAs. And you can deduct your contributions in full if you and your spouse don't have a 401(k) or some other retirement plan at work.

If either one of you is covered by a plan at work, however, the deduction may be reduced or eliminated. Here's the full rundown of IRA deduction limits for 2020:

2020 Traditional IRA Deduction 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 $104,000 or less A full deduction up to the amount of your contribution limit
  More than $104,000 but less than $124,000 A partial deduction
  $124,000 or more No deduction
Married filing jointly and your spouse is covered by a plan at work $196,000 or less A full deduction up to the amount of your contribution limit
  More than $196,000 but less than $206,000 A partial deduction
  $206,000 or more No deduction
Single or head of household and you're covered by a plan at work $65,000 or less A full deduction up to the amount of your contribution limit
  More than $65,000 but less than $75,000 A partial deduction
  $75,000 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

Modified Adjusted Gross Income (MAGI)

The IRA uses your modified adjusted gross income (MAGI) when it comes to IRA limits. This number can be close (or identical) to your adjusted gross income (AGI). It takes your AGI and adds back certain deductions, including:

To calculate your modified adjusted gross income, find your adjusted gross income (AGI) from your tax return. It's on line 8b of the newly redesigned Form 1040. Then, use Appendix B, Worksheet 2 from IRS Publication 590-A to modify your AGI for IRA purposes.

Excess IRA Contributions: If You Contribute Too Much

It's good to max out your IRA contributions. But if you go overboard, the IRS considers it an ineligible (or excess) contribution. If you contribute too much—or contribute to a Roth when your income is too high—you'll owe a 6% penalty on the excess contribution each year until you fix the mistake.

Ineligible IRA contributions trigger a 6% penalty on any amount you over-contribute.

The good news: There are several ways to fix your mistake:

  • Withdraw the excess contribution (and any earnings on it) before the April tax deadline.
  • If you've already filed your tax return, remove the excess contribution (and earnings), and file an amended tax return by the October deadline.
  • Apply the excess to next year's contribution. You'll still pay the 6% penalty this year, but you'll be set going forward.
  • Withdraw the excess next year by Dec. 31. You'll pay the penalty for two years and then move on.

Of course, it's best to avoid excess contributions altogether. Be sure to pay attention to the IRS's contribution limits for the year, keep track of your contributions, and watch your income. Just because you were eligible to contribute last year doesn't mean you still are.

The Saver's Credit

Many people with low to moderate incomes aren't even aware of the Saver's Credit, a dollar-for-dollar reduction of the taxes you owe. It has existed since the early 2000s.

If eligible, you could earn a credit of 10%, 20%, or 50% of your contributions, up to a dollar amount of $2,000 ($4,000 if married filing jointly).

The Saver's Credit is available to individuals, heads of households, and joint filers who contribute to an IRA, 401(k), or any other qualified retirement account, and whose adjusted gross income falls within certain parameters. Also, you must be over 18, not a full-time student, and not listed as a dependent on anyone else's tax return.

The income thresholds are adjusted annually. Here are the Saver's Credit rates for 2020:

2020 Saver's Credit
Credit  Married Filing Jointly Head of Household All Other Filers
50% AGI $39,000 or less AGI $29,250 or less AGI $19,500 or less
20%  $39,001 to $42,500 $29,251 to $31,875 $19,501 to $21,250
10%  $42,501 to $65,000 $31,875 to $48,750 $21,251 to $32,500
0%  More than $65,000 More than $48,750 More than $32,500

A married couple with an AGI of, say, $60,000 could save $400 on their 2020 tax bill by contributing $2,000 to each ($4,000 total) of their IRAs (the 10% level). If they managed to contribute $4,000 with an income below $39,000, their tax credit would be $2,000 (50% of their contributions).

The Bottom Line

Contribution limits apply to other types of IRAs, as well. For the self-employed and small business owners, the contribution limit for Simplified Employee Pension (SEP) IRAs and solo 401(k) plans is 25% of compensation, up to $57,000.

If you have a Savings Incentive Match Plan (SIMPLE) IRA, you can make salary deferrals (salary reduction contributions) up to $13,500 for 2020. If you're age 50 or older, you can add an extra $3,000.

Any type of IRA is an excellent way to save for retirement. But to take full advantage of these accounts—and avoid any trouble or penalties—be sure to follow the rules for contribution, income, and deduction limits. The limits change periodically, so check back each year to make sure you comply.