When it comes to your retirement savings, it’s always a good idea to save as much as you can. However, most retirement savings accounts, including self-directed IRAs, carry contributions limits.

Set by the IRS, these limits determine how much an individual can contribute to their self-directed IRA in a given year.

Though many of the rules that govern IRAs stay steady year over year, self-directed IRA contribution limits can and often do change over time. This year, however, the 2020 self-directed IRA limits will remain the same as those put in place in 2019. (Please note that the limits below do not apply to rollover contributions or qualified reservist payments).

  • Investors under the age of 50 can invest up to $6,000
  • Investors 50 years or older can invest up to $7,000

Most investors will be expected to follow the standard contribution rules listed above; however, the limits aren’t necessarily a catch-all. That’s particularly true if you’re investing through a self-directed Roth IRA.

 

Self-Directed IRA Contribution Limits for Roth Investors

 

Roth IRA contributions also depend on your filing status and your modified annual gross income (AGI). Ultimately, investors will fall into one of three categories: those able to make contributions up to the limit ($6,000/$7,000), those who can contribute a reduced amount, and those who cannot contribute.

You can contribute up to the limit ($6,000/$7,000) if one of the following is true about your income and filing status:

  • Married filing jointly with an AGI less than $196,000
  • Qualified widow(er) with an AGI less than $196,000
  • Single with an AGI less than $124,000
  • Head of household with an AGI less than $124,000
  • Married filing separately, have not lived with your spouse during the tax year, and have an AGI less than $124,000

 

 

Consult with Horizon Trust

 

Your annual contribution limit will be reduced if one of the following is true about your income and filing status:

  • Married filing jointly with an AGI that is more than $196,000 but less than $206,000
  • Qualified widow(er) with an AGI that is more than $196,000 but less than $206,000
  • Married filing separately and your AGI is less than $10,000
  • Single and have an AGI more than $124,000 but less than $139,000
  • Head of household and have an AGI more than $124,000 but less than $139,000
  • Married filing separately, have not lived with your spouse during the tax year, and your income is more than $124,000 but less than $139,000.

If any of the following is true about your income and filing status, you will not be able to make any contributions during a given tax year.

  • Married filing jointly and your AGI is $206,000 or more
  • Qualified widow(er) and your AGI is $206,000 or more
  • Married filing separately and your AGI is $10,000 or more
  • Single and your AGI is $139,000 or more
  • Head of household and your AGI is $139,000 or more
  • Married filing jointly, have not lived with your spouse during the tax year, and your income is $139,000 or more.

 

What happens if I contribute more?

 

In the case of contributions, more isn’t better. Investors who contribute more than allowed by IRS guidance are subject to a 6% tax per year for as long as the additional funds stay in the IRA account.

If you find that you’ve contributed more than you should have, then you can avoid the tax by withdrawing the additional funds before your income tax return due date and by withdrawing any income earned on the additional funds.

Though you may have another 11 months ahead of you, it’s important to set your investment strategy early in the year. This allows you to take full advantage of limits while also avoiding excess contribution concerns.

Keep in mind that though there are general self-directed IRA limits, if you’re investing in a Roth IRA, then you’ll also need to pay attention to filing status and income limits.

Not sure if you’re on the right path? Contact one of our team members today.