IRA for Low-Income Earners

For low-income individuals considering contributions to Individual Retirement Accounts (IRAs), understanding the income limits and potential benefits is crucial. Here's an overview:

IRA Contribution Limits for 2025

• Annual Contribution Limit: Individuals can contribute up to $7,000 to an IRA in 2025. Those aged 50 and above can make an additional catch-up contribution of $1,000, totaling $8,000.

Traditional IRA Deduction Limits

While anyone with earned income can contribute to a Traditional IRA, the tax deductibility of these contributions depends on income levels and participation in employer-sponsored retirement plans:

• Single Filers with Employer Retirement Plan: Full deduction is available if Modified Adjusted Gross Income (MAGI) is $79,000 or less; partial deductions are allowed for MAGI between $79,000 and $89,000. Above $89,000, no deduction is permitted.

• Married Filing Jointly with Employer Retirement Plan: Full deduction is available if combined MAGI is $126,000 or less; partial deductions are allowed for MAGI between $126,000 and $146,000. Above $146,000, no deduction is permitted.

• Married Filing Jointly without Personal Employer Plan but Spouse Has One: Full deduction is available if combined MAGI is $218,000 or less; partial deductions are allowed for MAGI between $218,000 and $228,000. Above $228,000, no deduction is permitted.

Roth IRA Income Limits

Eligibility to contribute to a Roth IRA is based on MAGI:

• Single Filers: Full contribution is allowed if MAGI is less than $150,000; partial contributions are permitted for MAGI between $150,000 and $165,000. Above $165,000, contributions are not allowed.

• Married Filing Jointly: Full contribution is allowed if combined MAGI is less than $236,000; partial contributions are permitted for MAGI between $236,000 and $246,000. Above $246,000, contributions are not allowed.

Considerations for Low-Income Individuals

Low-income earners often fall well below these income thresholds, allowing them to:

• Fully Deduct Traditional IRA Contributions: If not covered by an employer retirement plan, contributions are fully deductible regardless of income.

• Fully Contribute to Roth IRAs: Their income typically qualifies them for maximum contributions.

Additionally, they may be eligible for the Saver’s Credit, which offers a tax credit of up to 50% of retirement contributions, further enhancing the benefits of IRA contributions.

It's advisable for individuals to assess their current financial situation, tax implications, and retirement goals when deciding between Traditional and Roth IRAs.