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Individual Retirement Accounts (IRAs) are powerful tools for building long-term financial security. But to make the most of them, it’s essential to understand how IRA contributions work—from eligibility and limits to deadlines and tax rules. Whether you're just getting started or looking to refine your retirement strategy, here’s a breakdown of what you need to know.
To contribute to an IRA, you must have earned income. This includes wages, salaries, commissions, or self-employment income. You won't qualify to contribute if your only income comes from passive sources like dividends, or rental income. However, if you're married and only one spouse earns income, the working spouse can fund an IRA for the non-working spouse through what's known as a spousal IRA.
The IRS sets annual limits on how much you can contribute to an IRA. For the 2025 tax year:
These limits apply across all your Traditional or Roth IRAs combined—so if you have both a Traditional and a Roth IRA, your total contributions can't exceed the limit for your age group.
There are two primary types of IRAs, and they differ significantly when it comes to how contributions are treated:
Your income level also affects eligibility, especially for Roth IRAs. If you earn above a certain threshold, your ability to contribute may be reduced or eliminated altogether.
You have until the federal tax filing deadline—usually April 15 of the following year—to make contributions for the previous tax year. For example, you can make 2025 contributions until April 15, 2026.
It’s important not to exceed the contribution limits. Overcontributions are subject to a 6% penalty each year on the excess amount, unless corrected in a timely manner.
Your retirement savings shouldn’t be limited to just Wall Street. With a Self-Directed IRA, you can take full control of your financial future by choosing investments that align with what you know and trust—whether that’s traditional assets like stocks and bonds or alternative options like real estate, private lending, precious metals, and more.
Once your contribution is in the IRA, it doesn't just sit there—it can be invested. Depending on your custodian, you can diversify with mutual funds, equities, or branch out into alternative assets through a Self-Directed IRA. That means you can use your retirement funds to invest in rental property, participate in a real estate syndication, offer a private loan, or even invest in a small business.
The key to maximizing your IRA is choosing investments that match your personal risk tolerance and long-term goals. Whether you’re looking for cash flow, long-term appreciation, or a hedge against market volatility, a Self-Directed IRA gives you the flexibility to build a retirement portfolio that truly works for you.
While Roth IRA contributions aren’t deductible, Traditional IRA contributions—if you’re eligible—can reduce your taxable income for the year. Either way, you’ll need to report your contributions on your tax return. In some cases, you may need to file additional forms, such as Form 8606 for nondeductible contributions.
Making regular IRA contributions is one of the most straightforward ways to build retirement savings, especially with the tax advantages these accounts offer. Whether you’re contributing to a Traditional or Roth IRA, understanding the rules helps you avoid penalties and make the most of your money. As always, it’s a good idea to consult with a financial or tax advisor to ensure your contributions align with your overall retirement goals.
Ready to take control of your retirement strategy?
At Mountain West IRA, we specialize in Self-Directed IRAs that give you the power to invest beyond the stock market—into real estate, private loans, precious metals, and more. Whether you're considering a Traditional or Roth IRA, we can help you understand your options and answer any questions you may have.
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This post is for informational purposes only and should not be considered financial advice. Please consult with a financial advisor for personalized advice.
Mountain West IRA, Inc. does not render tax, legal, accounting, investment, or other professional advice. If accounting, tax, legal, investment, or other similar expert assistance is required, the services of a competent professional should be sought.
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