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Bottom Line Up Front

  • If you want to take advantage of tax-advantaged retirement accounts, there are rules you should know about.
  • The amount you can put into retirement accounts is usually restricted by things like income thresholds and filing status, so you may need to do some calculating to determine eligibility.

Time to Read

3 minutes

April 1, 2022

As you start contributing to your Individual Retirement Account (IRA), be aware of Internal Revenue Service (IRS) restrictions related to amounts, filing status and income thresholds. Eligibility differs based on the type of IRA and is important to keep in mind as you improve your personal finances. Don't sell yourself short on retirement savings and don’t continually leave it for “next year.”

The IRS says you can contribute up to $6,000 to Traditional IRAs and Roth IRAs, provided you're under age 50 and you've earned wages at least equal to that amount. If you're 50 or older, you can put in an additional $1,000 (for a total of $7,000).1 For Simplified Employee Pension (SEP) IRAs, which are tax-advantaged accounts that may be offered at work, you can put in 25% of your annual wage, up to a $61,000 limit,2 regardless of age. If you put money in multiple IRA accounts, the combined total for all retirement accounts must be below the limit.

Contribution Deadline

You have until April 15 of the current calendar year to make contributions to an IRA account for the previous year. For example, for tax year 2021 IRA contributions, you could have put the money in at any time during 2021 and up until April 15, 2022. If you haven’t contributed up to the limit in the past, you may be allowed to make catch-up contributions down the road.

Traditional IRAs and SEP IRAs

To contribute to a Traditional IRA or SEP IRA, you must have earned income from wages, salary, tips, bonuses, commissions and self-employment; it excludes investments and pensions. If you're a non-earning spouse who files a joint tax return with a working spouse, you also are eligible to contribute.

Depending on your income, you could be eligible to take a tax deduction on the amount you contribute to your Traditional IRA or SEP IRA. For 2022, there are no income limits for deductible contributions by single filers or married people who don’t have a retirement plan at work, and the traditional IRA deduction can be up to 100% of their contribution (up to the $6,000 or $7,000 limit).

Some annual contribution limits do kick in for married people where one spouse has a retirement plan at work, and one doesn’t. In 2022, married couples filing jointly who earn less than $204,000 can take a full deduction up to the limit. There’s a partial deduction allowed for those making between $204,000 and $214,000, and no deduction for those making more than $214,000. If you’re married filing separately, there’s only a partial deduction allowed and you must earn less than $10,000.

Roth IRA Income Limits

You won’t get a deduction for contributions to a Roth IRA like you would for traditional IRA contributions because the earnings grow tax free, so the benefit comes later. But Roth IRA contribution limits depend on your Modified Adjusted Gross Income or MAGI. For 2022, married couples filing jointly can put in up to the limit if they earn up to $204,000, with a phase-out up to $214,000 and then no contribution allowed. The phase-out range for the single filing status starts at $129,000 in 2022, with no contribution allowed above $144,000.

As you might expect, there are lots of twists and turns in the tax code. It can be worthwhile to explore IRAs if you’d like to save more money for retirement. If you want help exploring your retirement options, reach out to a Navy Federal Investment Services advisor.

 

Key Takeaways Key Takeaways

Disclosures

1Maximum contribution listed in total combined amount allowed for Traditional and Roth.

2$61,000 figure is for the 2022 tax year.

This content is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.