Not all tax numbers stay the same over time. Many income limits and other tax numbers are adjusted each year, either for inflation, or by another statutory mandate. These tax numbers include the tax tables and tax brackets for each year, for example. It also includes IRA contribution limits. The IRS announces the numbers each fall.
Since the numbers are adjusted based on inflation, they only increase if there is enough inflation over the course of the year to increase the ira contribution limits by the same percentage. With weak economic growth over the past few years, there has been little or no inflation. As such, the IRA contribution limits for 2020 are the same as they were in 2019.
The IRS has announced that the same retirement plan contribution limits will apply in 2021 as well.
2020 IRA Contribution Limits
The 2020 IRA contribution limits were recently published by the IRS. Note that these limits are for contributions made during the 2020tax year, for use when filing income taxes due by April 2021.
The maximum IRA contribution for 2020 is $6,000. This is the same as the maximum deduction for 2019. The same limit on IRA contributions will apply in 2021.
The 2020 IRA catch-up contribution amount remains unchanged at $1,000 as well. Only taxpayers over age 50 are permitted to make a catch-up contribution to an IRA account.
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Therefore, taxpayers under age 50 may contribute up to $6,000 to their IRA during the 2020 tax year and those over age 50 may contribute up to $7,000. Remember, however, that IRA contributions may be made through April 15th of the following year. In other words, contributions made anytime between January 1, 2020 and April 15, 2021 may be claimed as a 2020 deduction for those who qualify for an deductible IRA contribution. This is provided, of course that none of the amount contributed between January and April 15th, was deducted on your 2020 taxes.
Maximum Income for Deductible IRA Contributions 2020
Traditional IRA contributions are tax deductible for taxpayers with incomes below certain thresholds. These income limits are also adjusted each year for inflation. If you, or your spouse, are covered by an eligible retirement plan at work, then for 2020, the maximum adjusted gross income (AGI) for a full IRA contribution deduction is $104,000 for joint filers, and $65,000 for single filers.
Taxpayers with high incomes above these amounts will have to calculate the phase-out for their 2020 IRA contributions. Those with incomes higher than $124,000 for married filing jointly, or $75,000 for those filing single, cannot deduct any part of their contribution to a traditional IRA account.
Taxpayers who do not have an eligible retirement plan offered at work, and whose spouse is also not covered by a work retirement plan may take a full deduction for IRA contributions regardless of how much money they earn.
If a taxpayer is not covered by a retirement plan at work, but their spouse IS COVERED, then the income limit for a fully deductible contribution is $196,000 or less. Deductible IRA contributions are phased out in such cases for incomes between $196,000 and $206,000 during 2020.
Non-Deductible IRA Contributions
Regardless of income, taxpayers may contribute to a traditional IRA with a non-deductible IRA contribution. Some taxpayers may find it more advantageous to contribute to a Roth IRA if they are unable to deduct a traditional IRA contribution.
Where To Deduct IRA Contributions
Deduction IRA contributions happens on Schedule 1 of Form 1040, Additional Income and Adjustments to Income. Filing a Schedule 1 does not require taxpayers to itemize deductions. Your deduction amount goes on Line 19 subject to the above IRA income limits, and IRA contribution limits.
You can take an IRA deduction without itemizing your deductions.