IRA Rules: Contributions, Deductions, Withdrawals

Individual retirement accounts provide tax advantages to those who save for retirement. Before investing in an IRA, it can be helpful to understand how IRAs work and what to expect when contributing to an account. Here are the guidelines associated with IRAs, including how much you can deposit in the account each year, what sort of tax savings you will receive and when to withdraw funds.

IRA Contribution Rules

The IRS has limits on how much can be contributed to an IRA. In 2023, your total contributions to all IRAs cannot be more than $6,500 if you are age 49 or younger and $7,500 if you are 50 or older.

You need to have earned income from a job or business to be eligible to contribute to an IRA. When putting money into an IRA, “You aren’t able to contribute more than the amount of your earned income,” says Andy Panko, a certified financial planner and owner of Tenon Financial in Metuchen, New Jersey. If you earn $1,000 in a year, you won’t be able to contribute more than $1,000 to the IRA.

However, there is an exception to the earned income requirement for married couples. If you are married and your spouse doesn’t work for pay, you may be able to open and contribute to a spousal IRA. This type of account is “an IRA to which a working spouse can contribute on behalf of his or her non-working spouse,” Panko says.

[Read: IRA Contribution Limits for 2022.]

IRA Tax Deduction Rules

You may be able to defer paying income tax on the amount you contribute to an IRA. The exact deductible amount will depend on what other retirement accounts you have.

“If neither you nor your spouse is covered by a company retirement plan, you can deduct the full amount of your annual contribution, no matter how much money you make,” says Mike Piershale, president of Piershale Financial Group in Barrington, Illinois. If you or your spouse has a retirement plan through work, such as a 401(k), the amount you will be able to deduct is based on your income and tax filing status.

If you are a 401(k) participant who is taxed as an individual and earn more than $73,000, you won’t be able to deduct the entire IRA contribution. In this case, there is a phase-out range that caps at $83,000. If you earn more than $83,000, you won’t be able to make a tax-deductible IRA contribution.

For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is between $116,000 and $136,000. If you earn more than $136,000 as a joint filer with a 401(k), you will not be able to deduct your IRA contribution.

“For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the phase-out range is increased to between $218,000 and $228,000,” says Adam Bergman, a tax attorney and president of the IRA Financial Trust Company in Sioux Falls, South Dakota.

[Read: A Guide to Your IRA.]

IRA Withdrawal Rules

You can expect to pay income tax on each withdrawal from your traditional IRA. If you take out pre-tax IRA contributions before age 59 1/2, you will also typically face a penalty, which is 10% of the amount withdrawn. This means a distribution of $15,000 before age 59 1/2 would be treated as income and create a $1,500 tax penalty.

“If you are over the age of 59 1/2, then only income tax would apply — no early distribution penalty,” Bergman says. However, there are some penalty exemptions for specific circumstances, such as a job loss or high medical expenses.

When you reach age 73, you’ll need to take required minimum distributions from your IRA every year until the IRA is depleted. “The average RMD is approximately 3% of the value of the IRA as of Dec. 31 of the prior year,” Bergman says.

[Read: How to Open a Roth IRA.]

Roth IRA Rules

Not everyone is eligible to contribute to a Roth IRA. If your income is above a certain level, the option isn’t available. For instance, if you are married and file a joint tax return, you won’t be able to contribute if your income is greater than $228,000.

“If you are over the income threshold for contributing directly to a Roth IRA, you might still benefit from contributing to a traditional IRA,” says Kevin Lao, a financial planner and founder of Imagine Financial Security in Jacksonville, Florida. “In this situation, you will also be above the income threshold to qualify for a tax deduction, but you could take advantage of what is called a Roth conversion.” This consists of converting some or all of your traditional IRA into a Roth IRA. “There is no income threshold for who can qualify for a Roth conversion,” Lao says.

When you make contributions to a Roth IRA, the amount you put in will not be tax-deductible. Earnings from the account are not subject to taxes if you meet certain requirements before taking them out. “In order to withdraw gains without taxes or penalties, you generally must be at least 59 1/2 and must have had a Roth IRA opened for at least five years,” Panko says.

In addition, you can take out the original contribution amount put in a Roth IRA at any time. It won’t be subject to taxes or penalties. “If most of your retirement savings is held within tax-deferred IRAs, you might consider diversifying into tax-free buckets, including a Roth IRA,” Lao says. “That way you aren’t betting on one tax outcome over the other.”

More from U.S. News

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IRA Rules: Contributions, Deductions, Withdrawals originally appeared on

Update 01/11/23: This story was published at an earlier date and has been updated with new information.

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