An Individual Retirement Account (or IRA) is an “individual retirement plan” that is funded through personal contributions. IRAs are a great addition to traditional 401(k)s and allow individuals to save for retirement with tax-free growth or on a tax-deferred basis, depending on the type of IRA.

Basic Definitions

There are two types of IRAs: Traditional IRAs and Roth IRAs. Traditional IRAs are funded by pre-tax dollars, through a deduction on the front end, and distributions withdrawn in retirement are taxable. A Roth IRA acts inversely to a Traditional IRA, whereas after-tax dollars are contributed (taxed on the front end) and distributions withdrawn in retirement are tax-free. Since the benefits of investing in these retirement vehicles is extremely advantageous, there are certain limitations that apply.

2021 Limitations

For 2021, an individual may contribute up to the greater of $6,000 or the amount of earned income in the tax year. This contribution limit can be a combination of both traditional and Roth IRA contributions, but must be allocated so that the total contribution for the year does not exceed $6,000. This limit applies to each taxpayer, so a couple filing jointly will be able to contribute up to $12,000 for the year. Anyone age 50 and over can contribute an additional $1,000 of “catch-up” contributions.

For a Traditional IRA, the up-front tax deduction will be gradually phased out if your modified adjusted gross income (MAGI) is above certain amounts. The thresholds for 2021 can be seen in the chart below:

Filing Status Deduction Phase Out Range

No Deduction

Single/ Head of Household

$66,000 – $76,000


Married Filing Jointly/ Qualifying Widower

$105,000 – $125,000

$198,000 – $208,000*



Married Filing Separately

$0 – $10,000


* There is an exception for those married filing jointly if one spouse is not covered by an employer retirement plan [such as a 401(k)] which increases the threshold amounts.

For a Roth IRA, there are limits to how much you can contribute each year based on your MAGI. The thresholds are shown below:

Filing Status Contribution Phase Out Range

No Contribution Permitted

Single/ Head of Household

$125,000 – $140,000


Married Filing Jointly/ Qualifying Widower

$198,000 – $208,000


Married Filing Separately

$0 – $10,000



Lastly, in general, withdrawals may be taken out at age 59 ½ from your IRAs without being assessed a 10% early withdrawal penalty. One difference that exists between Traditional IRAs and Roth IRAs, is that a Traditional IRA has Required Minimum Distributions (or RMDs) starting at age 72 (since the money will be taxed upon withdrawal) while Roth IRAs can be kept in investments indefinitely with no consequences.

Contact Us

IRAs are a great supplement to employer sponsored retirement plans. If you would like to learn more about how you can utilize an IRA for your retirement savings, call us at 513-241-8313 or click here to contact us. We look forward to hearing from you.