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Individual retirement accounts (IRAs) are one of the most flexible ways for American taxpayers to save for retirement. Each fall, the U.S. Department of the Treasury releases cost-of-living adjustments (COLAs), which determine the contribution limits to IRAs and the deduction amounts for some savers. Those adjustments really matter: the more you can invest, the more your money can grow over your working years.
For 2025, the IRS left unchanged its 2024 total contribution limit of $7,000 for traditional and Roth IRAs, plus $ 1,000 catch-up contributions for individuals over 50. Additionally, the IRS increased employer-funded SEP and SIMPLE contribution limits to $70,000 and $16,500, respectively. Income limits for deducting traditional IRA contributions or making Roth IRA contributions both rose slightly from 2024 to 2025.
Key Takeaways
- Individual retirement accounts (IRAs) are a great way to save for retirement.
- Because they come with certain tax advantages, there are limits on how much you can contribute each year.
- There are also income limits that phase out tax-deductibility (or eligibility for Roth IRAs).
- These limits are adjusted annually to keep up with inflation.
- Excess contributions are subject to a 6% penalty.
IRA Contribution Limits
Contribution ceilings are in place to prevent IRAs from becoming unlimited tax shelters for high-income earners, a concern that arose during debates over the 1974 Employee Retirement Income Security Act that’s returned in subsequent debates and amendments.
Congress picked the original IRA ceiling—“15% of pay, up to $1,500”—because that figure (a) mirrored what self-employed workers could already deduct under existing Keogh plans, (b) was thought to be around the maximum that most middle-income employees without pensions could plausibly save at the time, and (c) limited the overall revenue hit to the U.S. Treasury.
Each year, the Treasury recalculates retirement plan limits with a COLA to account for inflation, using the Consumer Price Index.
COLAs mean that today’s $7,000 cap preserves only some of the original target ($1,500 in 1974 dollars is about $10,000 in 2025 dollars), so in real dollar terms, the limit has declined since the 1970s.
Tip
To determine COLA increases, contribution limits are rounded to the nearest multiple of $500 or $1,000, as required by law.
You Can Only Contribute Earned Income
Contributions made to any IRA are limited to taxable “earned income,” broadly defined as wages, salaries, tips, bonuses, self-employment income, and certain other items (but not rent, interest, or investment income). The total you can contribute for 2025 is the lesser of the following:
- The annual contribution limit ($7,000 for 2025; $8,000 if age 50 or over)
- Your taxable compensation for the year
The contribution limit applies to all IRAs in a given year. For 2025, if you have both a traditional and a Roth IRA, you must decide how to divide $7,000 between the two.
Traditional IRAs
Traditional IRAs allow either tax-deductible or nondeductible contributions, with deductibility based on your modified adjusted gross income (MAGI) and workplace retirement plan coverage:
- Contribution limit: $7,000 for 2025; catch-up of $1,000 for age 50 and over
- Deduction phase-out (if covered by a workplace plan):
- Single/head of household: MAGI between $79,000 and $89,000
- Married filing jointly (MFJ), contributor covered: MAGI between $126,000 and $146,000
- Deduction phase-out (if spouse covered, contributor not):
- MFJ MAGI between $236,000 and $246,000
- Married filing separately (MFS, living with spouse): MAGI of $0 to $10,000 (no adjustment for COLA)
Above these upper limits, contributions are allowed but aren’t tax deductible.
Tip
Taxpayers with 2025 MAGI up to $79,000 (married filing jointly), $59,250 (head of household), or $39,500 (single/MFS) can claim a nonrefundable “Saver’s Tax Credit” of 50%, 20%, or 10% on the first $2,000 they contribute to an IRA—worth up to $1,000 off their tax bill—by filing IRS Form 8880 with their tax return.
Roth IRAs
Roth IRAs offer after-tax contributions with subsequent tax-free growth, but have income limits:
- Contribution limit: $7,000 for 2025; catch-up $1,000 for age 50 and over
- MAGI phase-out ranges:
- Single/head of household: $150,000 to $165,000
- MFJ: $236,000 to $246,000
- MFS (living with spouse): $0 to $10,000 (no COLA adjustment)
Contributions above the phase-out range are disallowed.
Tip
High earners can still take advantage of a Roth IRA using a so-called backdoor Roth IRA, by converting traditional IRA contributions into a Roth.
SEP & SIMPLE IRAs
Unlike traditional and Roth IRAs, which are individually owned and funded, SEP and SIMPLE IRAs are designed for small businesses (with 100 or fewer employees) and offer higher limits than traditional IRAs, but a lower administrative burden than 401(k) plans.
SEP IRAs (Simplified Employee Pension) allow employers to make contributions up to the lesser of 25% of compensation or $70,000 for 2025. A SEP plan must cover all eligible employees, subject to minimum compensation rules ($750 for 2025).
SIMPLE IRAs (Savings Incentive Match Plan for Employees) permit employee salary deferrals and, optionally, employer matches:
- Employee deferral limit: $16,500 for 2025
- Catch-up: $3,500 for those age 50 and over; under SECURE 2.0, those ages 60 to 63 can contribute an extra $5,250
- Employer match requirement: Either a dollar-for-dollar match up to 3% of compensation or a 2% non-elective contribution
| 2025 IRA Contribution & Income Limits | ||||
|---|---|---|---|---|
| IRA Type | 2025 Contribution Limit | Catch-up | Income Phase-out | Individual/ Employer |
| Traditional IRA | $7,000 | $1,000 Age 50+ | Single: $79,000–$89,000 MFJ (covered): $126,000–$146,000 MFJ (spouse covered): $236,000–$246,000 MFS: $0–$10,000 |
Individual contributions |
| Roth IRA | $7,000 | $1,000 Age 50+ | Single: $150,000–$165,000 MFJ: $236,000–$246,000 MFS: $0–$10,000 | Individual contributions |
| SEP IRA | ≤25% comp. / $70,000 max | N/A | N/A | Employer contributions |
| SIMPLE IRA | $16,500 | +$3,500 Age 50+ (+$5,250 for ages 60–63) | N/A | Employee salary deferrals |
Spousal IRAs
A spousal IRA isn’t an official account type, but instead refers to the ability of a working spouse to make IRA contributions on behalf of their non-working (or low-earning) spouse. Here’s how your contributions can qualify:
- You must be married and file jointly and have enough combined taxable income.
- Each spouse can contribute up to the year’s IRA limit, even if one spouse has little or no earned income.
All the usual deductibility and phase-out rules for traditional IRAs (if covered by a workplace plan) or Roth IRAs (income-eligibility limits) apply to spousal contributions.
Penalties for Exceeding IRA Contribution Limits
Going over IRA contribution limits triggers a 6% penalty on the excess amount for each year it’s still in the account. To avoid getting hit with the tax, you need to do the following:
- Withdraw any excess contributions by the due date of your tax return (including extensions)
- Withdraw any income earned on those excess contributions
If withdrawn on time, you avoid the penalty, but the earnings may be taxable and subject to penalties if withdrawn before age 59½. Use Form 5329 to report and pay any penalties owed.
The Bottom Line
IRAs have contribution and income limits to ensure that they’re not used by the wealthy as bloated tax shelters. For 2025, traditional and Roth IRA contributions are capped at $7,000 with a $1,000 catch-up for those aged 50 and over.
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