The traditional IRA is an individual retirement account where your contributions might be tax deductible. With a traditional IRA, you grow your account on a tax-deferred basis and pay applicable taxes on all deductible contributions to the account when taking distributions. In 2024, the traditional IRA contribution limits are $7,000 or $8,000 if you are 50 or older.
The traditional IRA contribution limits are not all tax-deductible. The amount you can deduct from your tax returns depends on your modified adjusted gross income (MAGI) and filing status. The IRS has income limits that you can use as a guide to determine your eligibility for a tax deduction on traditional IRA contributions.
Here is everything you need to know about traditional IRA contribution limits and eligibility for tax deductions on your contributions.
What is a traditional IRA?
A traditional IRA is a retirement account you can open from a bank, brokerage firm, or investment company that offers retirement services. Unlike 401(k) plans, a traditional IRA is not sponsored by an employer. Instead, you open the account and manage it as you please. The money in your traditional IRA grows on a tax-deferred basis and pays applicable tax during retirement.
The traditional IRA contribution limits will not be affected by your income. However, your income will directly affect your eligibility for tax deductions.
According to the IRS, contributions to a traditional IRA will be tax-deductible based on your income, filing status, and other benefits you have from work.
One of the biggest benefits of a traditional IRA is that you have access to a wide range of investments such as mutual funds, index funds, individual stocks, and bonds. Additionally, the account gives you tax benefits, you can boost your retirement savings, and you pay fewer fees compared to employer-sponsored plans such as pre-tax 401(k) plan.
Traditional IRA contribution limits for 2024
The traditional IRA contribution limits in 2024 are $7,000 or $8,000 if you are 50 or older. In 2023, the traditional IRA limits are $6,500 or $7,500 if you are 50 or older.
The limits to a traditional IRA and a Roth IRA are the same. That is if you have a Roth IRA, your limits will be $7,000 in 2024 or $6,500 in 2023. If you are 50 or older, your IRA limits will be $8,000 in 2024 or $7,500 in 2023.
The biggest difference between these accounts is that the Roth IRA requires after-tax contributions and you pay no tax on qualified distributions while the traditional IRA may offer tax deduction but require applicable tax during retirement. In addition, the Roth IRA does not come with RMDs when the account belongs to the original owner.
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Traditional IRA phase-out ranges in 2024 when covered by employer benefits
Although you can contribute to your traditional account regardless of your income; all your contributions may not be deductible. The IRS has deduction eligibility that is based on your modified adjusted gross income(MAGI), other benefits you have from work, and filing status.
The following are the traditional IRA income limits for deduction eligibility. These traditional IRA limits are calculated under the assumption that the participants have other benefits from work such as a 401(k) plan.
| Features | Modified AGI | Deductible amount |
| Single or head of household | less or equal to $77,000 | full deduction |
| Single or head of household | higher than $77,000 but less than $83,000 | partial deduction |
| Single or head of household | equal or greater than $78,000 | $0 deduction |
| Married filing jointly or qualified widow | less or equal to $123,000 | full deduction |
| Married filing jointly or qualified widow | higher than $123,000 but less than $143,000 | partial deduction |
| Married filing jointly or qualified widow | equal to or more than $143,000 | $0 deduction |
| Married filing separately | equal to $10,000 or more | $0 deduction |
| Married filing separately | Lower than $10,000 | partial deduction |
Benefits of traditional IRA
Tax benefits are the biggest incentives that come with retirement savings accounts. For the traditional IRA, you will grow your account on a tax-deferred basis. Tax-deferred means you delay paying taxes until you have retired. As a result, your account will grow faster due to the compound interest effect.
You could also qualify for a tax deduction which will automatically reduce your taxable income for the year you contributed.
Unlike 401(k) plans where you are limited to a few investment options inside the plan; the traditional IRA comes with a wide variety of investments. With this account a traditional IRA, you can invest in Exchange-Traded Funds(ETFs), mutual funds, individual stocks, bonds, REITs, index funds, etc.
Drawbacks of traditional IRA
The biggest drawback of a traditional IRA is that you may not qualify for tax deductions if your income falls outside of acceptable phase-out ranges. You will still contribute to the account but your contributions will not be tax deductible.
Another drawback of a traditional IRA is that you will pay taxes on deductible contributions you made to the account when taking distributions. Furthermore, the account comes with required minimum distributions(RMDs) when you turn 73.
Finally, the traditional IRA contribution limits are much lower than employer-sponsored plans such as a pre-tax 401(k) or a Roth 401(k) plan. For these two plans, you can contribute up to $23,000 or $30,500 if you are 50 or older. These income limits are much higher than traditional IRA limits.
Why should you open a traditional IRA?
The traditional IRA is good for people who don’t have retirement benefits from work or those who do but want more flexibility with their money.
If you don’t have an employer-sponsored plan, you should open a traditional IRA and start saving for retirement.
On the other hand, if you have other benefits but want more flexibility, you can still open a traditional IRA as well. The account will come with fewer fees and more investment options compared to employer-sponsored plans. Having a lot of investment options means that you can maximize your return on investment.
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