Rules for iras in 2024 and 2025

Individual retirement accounts (IRAs) are one of the most popular tools for building retirement savings. More than 55 million U.S. households, about 42 percent of the total, own IRAs,

according to the Investment Company Institute.  Each year, the IRS adjusts the rules for IRA eligibility based on inflation. Those adjustments can make a big difference in who can

contribute to a Roth IRA, and who can deduct contributions to a traditional IRA from their taxable income. For both traditional and Roth IRAs, you can contribute up to $7,000 for 2025,

the same amount as in 2024. Retirement savers age 50 and older can chip in an extra $1,000 a year as a catch-up contribution, so $8,000 in all. A person who turns 50 this year and starts

contributing can sock away $128,000 in an IRA by age 65, not including any investment returns on the principal or contribution increases; a couple could save $256,000. The catch-up cap is

indexed to inflation, meaning most people 50-plus can save more as the cost of living goes up. Sadly, the rules for adjusting those caps kept the catch-up amount to $1,000 next year.

TRADITIONAL IRAS A traditional IRA allows you to deduct your contribution from your income, which can reduce your taxes and make it easier on your budget to save.  For example, suppose

you’re in the 24 percent federal income tax bracket. To save $7,500 for retirement in a fully taxable account, you would have to earn about $9,868 before taxes.  With a traditional IRA,

however, you can deduct that $7,500 contribution, meaning that to get $7,500 to invest, you only have to earn $7,500. (You can only contribute earned income to an IRA; investment income

and Social Security benefits don’t count.) If you (or your spouse) don’t have a retirement plan of any kind, you can take the full deduction for an IRA. If you do have a retirement plan

available from your employer — even if you don’t take advantage of it — your ability to deduct a traditional IRA contribution is limited by your income.