In addition to employer-sponsored 401(k) plans, an individual retirement account (IRA) is a smart option to save for retirement. IRA plans, which used to be known as individual retirement arrangements, allow you to contribute money in a tax-advantaged account. This money can grow to help fund your golden years and to help you manage post-retirement costs. You can open an IRA through a bank, brokerage firm, credit union, or other financial institution.
IRA contribution limits
IRAs have annual contribution limits. Some of the factors that change your total allowable contribution levels include the type of IRA you have, your age, your earnings, and if you or your spouse have a workplace retirement plan. The general contribution limits are as follows:
| General contribution limit | If over the age of 50 | |
|---|---|---|
| Traditional and Roth IRAs | $7,000 | $8,000 |
| SIMPLE IRAs | $16,000 | $19,500 |
| SEP IRAs | $66,000 (or 25% of compensation or net self-employment earning, whichever amount is less) | $73,500 (or 25% of compensation or net self-employment earning, whichever amount is less) |
IRS contribution limits for 2025
Traditional IRA contributions cannot be limited by annual income. However, not all contributions are deductible. Depending on your Modified Adjusted Gross Income (MAGI), you may still be able to make fully or partially deductible contributions even if you have a workplace retirement plan. Roth contributions, however, are dependent on your MAGI and filing status. The annual deadline for both traditional and Roth contributions is April 15 of the following calendar year.
Under the rules for SEP IRAs, only employers (or self-employed individuals themselves) can make contributions. As a self-employed individual, you can make contributions of up to 25% of your net earnings. However, be careful to subtract both SEP contributions and half of your self-employment tax before calculating the 25% cap. Effectively, this rate becomes 20% of your gross income. The annual contribution deadline for SEP IRA contributions is also April 15 of the following calendar year.
Employers, self-employed individuals, and employees can all make contributions to SIMPLE IRAs. Employees can contribute up to $16,000 ($19,500 if they’re over 50 years old), and their contribution deadline is Dec. 31 of the calendar year. Employers can, but are not required to, contribute 2% of an individual employee’s compensation or make matching contributions of up to 3%.
Regardless of account type, individuals can’t contribute more than their annual taxable compensation. This includes wages, salaries, commissions, bonuses, tips, and more. However, this does not include income such as rental income, capital investment income, or income from annuities, pensions, and deferred compensation.
One exception is that spouses may create an IRA for a non-working spouse, and the contributions do not count under the contributing spouse’s contribution cap for their own accounts.
How IRA contribution limits work
The IRA contributions have some specific exceptions and specific rules for non-standard circumstances. These changes to the contribution limits include:
Traditional IRAs: These IRAs give up-front tax breaks to contributing individuals because you can contribute pre-tax dollars. For example, if you contribute the max of $7,000, you can remove the $7,000 from your total taxable income. However, if you or your spouse have a workplace retirement plan and a high level of income, it may reduce the total deductible amount of money you can contribute. You may still contribute non-deductible amounts up to the cap.
Roth IRAs: Roth IRA contributions do not reduce your current year’s total taxable income. Instead, your future withdrawals will not be taxed. However, as your income increases, your eligibility to make Roth IRA contributions reduces.
SIMPLE IRAs: Employers may open SIMPLE IRAs for themselves or their employees if they have a business with fewer than 100 employees. Contributors may contribute to both SIMPLE IRAs and traditional and Roth IRAs; the contributions in one category do not affect contribution limits to the other.
SEP IRAs: SEP (Simplified Employee Pension) IRAs can be opened and contributed to by self-employed individuals and small business owners. If you receive contributions through your SEP IRA from your employer, you can still contribute the full amount to your traditional or Roth IRAs.
Traditional IRA deduction limits
The most up-to-date IRA deduction limits for the calendar year can be found on the IRS site, which covers how much your modified AGI can affect your potential deduction limits. Keep in mind that IRA deduction limits are subject to change every year.
Roth contribution limits: For single or married individuals interested in learning about the Roth contribution limits as affected by their modified AGIs, you can learn more on the IRS site, which updates Roth contribution limits annually.
Managing IRAs can also be challenging. If your small business needs help managing and administering IRAs or other retirement account plans, Human Interest is here to help. Contact us today to find a management plan that suits you and your employees’ retirement needs.
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The Human Interest TeamWe believe that everyone deserves access to a secure financial future, which is why we make it easy to provide a 401(k) to your employees. Human Interest offers a low-cost 401(k) with automated administration, built-in investment education, and integration with leading payroll providers.
