Are you contributing the maximum amount to your individual retirement account, or IRA? Many people aren’t taking full advantage of their contribution limits. That could mean missing out on valuable growth opportunities for retirement.

In this week’s Money Wisdom Question Series, Heath Grossman, CFP® walks through the current IRS contribution limits and explains the differences between traditional and Roth IRAs.

2025 Annual Contribution Limits

As of 2025, you can contribute up to $7,000 to a Roth IRA, a traditional IRA, or a combination of the two. If you’re 50 or older, you can contribute an additional $1,000 for a total of $8,000.

But there are also income limits depending on your taxable compensation for the year. For example, if your earned income was $3,000 in a given tax year, your contribution limit would be $3,000.

Traditional IRA Rules

Generally, a traditional IRA lets you contribute funds and claim a tax deduction for those contributions. That means you don’t pay taxes on the income you set aside in the account. Once you withdraw the money in retirement, those funds become taxable as ordinary income.

However, certain parameters can limit how much you can deduct. These factors include whether you participate in an employer-sponsored retirement plan, or whether your income exceeds certain thresholds.

Roth IRA Rules

Roth IRAs are relatively new in the world of financial products, having been introduced to the public in 1998. This type of IRA allows you to contribute funds that you’ve already paid taxes on, allowing your earnings to grow tax-free. However, your eligibility to contribute begins to phase out at higher income levels.

Put simply, a Roth IRA taxes your contributions whereas a traditional IRA taxes your withdrawals. Consider speaking with a financial advisor to determine which option best aligns with your goals and financial situation.