Limits and Eligibility

Again, the first criteria to be allowed to deposit into a Traditional IRA is that you earn income. The government wanted to make sure that account applicants could actually deposit something regularly. Second, your age is under 70½ years of age. After that point, the Traditional IRA is off-limits to you.

So you’re young enough and employed? Good. Then you are allowed to deposit up to $5,000 in a given tax year (which for IRAs runs from April to April versus a calendar year which is from January to December).

But there’s a twist. You need to earn more income annually than the deposit cap. So if your total earned income for the year was only $2,000 (think employed teenager or heavily registered college student), then you can only deposit up to $2,000 in a Traditional IRA that year.

If you’re over 50 years of age, you can take advantage of the catch-up clause and put in $6,000 annually to make up a bit of lost time. Additional deposits will usually trigger a response from the IRS, not to mention your account institution won’t allow the extra deposit if they see it happening. And most do.

Keep in mind, a Traditional IRA is not impacted by any retirement plan you may have in your employment. So your 401K, 457, 403b or any other type of retirement plan is separate and does not affect your deposit limitations. Thus you could directed $20,000 into your 401k through work, and still put away $5,000 in your Traditional IRA. However, this option goes away the more income you earn.

Folks who get into the upper brackets (which is not much above $100,000 a year) quickly lose deposit ability and definitely lose the tax deduction credit altogether.