So you’ve decided to open an IRA. Whether you opted for a Roth IRA or a traditional one, you can rest assured that you’re making a great investment in the financial stability of your future. But, as you should already know, there are limitations to how much you can contribute to these accounts. What’s up with that? Today, we’re going to give you the low-down on IRA contribution limits.
Why Do IRA Contribution Limits Exist?
The IRA contribution limit does not exist to prevent you from enjoying a more luxurious retirement. On the contrary, it exists to ‘narrow the gap’ between high earners and average earners.
Remember: both IRAs provide some form of tax benefit. In the case of traditional IRAs, contributions are made with pretax dollars, but are taxed upon withdrawal. Thus, we can refer to IRA contributions as ‘tax-deferred.’ On the other hand, contributions to Roth IRAs must be taxed, but not withdrawals.
In contemporary politics, there is a lot of talk about the rich enjoying unfair tax advantages. IRA contribution limits exist to prevent this. That’s why, for instance, individual filers with a modified adjusted gross income exceeding $140,000 cannot contribute to a Roth IRA in 2023.
What Is the Limit in 2020 and 2023?
Every year, the IRS has the opportunity to adjust the contribution limit to IRAs and other benefit savings accounts such as 401k’s and HSAs. They make this decision based on a number of factors, such as changes in the cost of living or inflation limits. However, they do not change every year.
There will be no such changes for IRA contribution limits in 2023. Typically, the IRS would notify us of any changes in the month of October.
Here is the magic number: in 2022 and 2023, the IRA contribution limit is $6,000. There is one notable exception. For people over the age of 50, an additional $1,000 is permitted, bringing the total to $7,000. Please note that you cannot open both a Roth IRA and a traditional one to get around this. If you have both, the combined total contributions cannot exceed $6,000 for those under 50 or $7,000 for those over.
If you find yourself frustrated that you’ve met your IRA contribution limit, try to shift your perspective to realize how lucky you are to be among the few who are able to do so. An overwhelming majority of Americans live paycheck to paycheck and do not have the luxury to make substantial contributions to retirement accounts.
And don’t forget: there are far more avenues through which you can ensure a happy and comfortable retirement than just IRAs.
Contact Bowman & Company Today
Bowman & Company CPA, PC provides all of our individual and small business customers with experienced, accurate, and affordable financial services. Our financial services aim to decrease your taxes and increase your net worth through responsible, timely, and accurate record keeping. We offer our services to clients throughout the Washington, D.C., metropolitan area, including Maryland and Baltimore County, Columbia, and Howard County. For more information on our offerings, contact us online or call us at (410) 381-8121. You can also find us on Twitter, Linkedin, Facebook, and Youtube.