How Much Can You Put in an IRA This Year?

If you have an IRA, or are considering opening one, you might be wondering how much you can contribute every year. How much you can contribute to an Individual Retirement Account (IRA) depends on your age, your income, the IRA type, and whether you also contribute to an employer-sponsored retirement plan.

There are two types of IRAs: traditional and Roth IRAs. Both have set contribution limits, as well as other guidelines. With an IRA, an investor typically has to find one that fits their needs. A report from 2019 reveals that only 36 percent of U.S. households owned an IRA.

Related: What Is an IRA?

According to the Internal Revenue Service, for tax years 2020 and 2021, investors can contribute a total of $6,000 into IRA accounts. (If you’re 50 or older, you can contribute $7,000.)

What Is an IRA?

An IRA stands for Individual Retirement Account. IRAs allow people to make tax-deferred investments that they can use in retirement. There are several different types of IRAs, including traditional IRAs and Roth IRAs. You can set up an IRA with a bank, insurance company, or other financial institution.

What types of IRAs are available?

Traditional IRA

A retirement investor’s contributions to a traditional IRA are typically tax-deductible. Investors won’t pay taxes on earnings with a traditional IRA. When investors reach retirement age, they’ll pay taxes on withdrawals because they’re taxed like income. It’s almost like paying yourself a salary in retirement and paying income taxes on those payments.

Related: How an IRA Works

Roth IRA

Contributions to a Roth IRA are made after taxes and aren’t tax-deductible. With a Roth IRA, earnings aren’t typically taxed, but investors won’t have to pay taxes on withdrawals from a Roth IRA when they reach retirement age and start using the funds in one of these accounts.


A Sep IRA is a simplified employee pension IRA. These IRA accounts help small businesses or self-employed retirement investors make contributions to an IRA in the employee’s name.

Simple IRA

A SIMPLE IRA plan (Savings Incentive Match PLan for Employees) is an account that most resembles a traditional 401K. This savings incentive match plan for employees can be set up by small businesses that don’t have any other retirement plans. Like a 401(k), this IRA lets employees and employers contribute, but with lower costs and fewer administration fees than a typical 401(k).

Related: How to Open Your First IRA

How Much Can You Contribute to an IRA Each Year?

If you’re younger than 50, you can contribute a combined maximum of $6,000 annually to a traditional IRA or a Roth IRA.

After 50, you’re allowed to make “catch-up” contributions, so the cap goes up to $7,000 a year. Previously, you could not make contributions to a traditional IRA once you reached the age of 70.5. But starting in 2020, there is no age limit; there’s also no age limit for a Roth IRA.

Limits for Roth IRA and traditional IRA contributions for the tax year 2020 and 2021:

•  Under age 50: $6,000
•  Age 50 and older: $7,000

Related: What Is a Roth IRA?

However, there are a few exceptions to the retirement contribution limits. If you make less than the limit in taxable income, you can only contribute up to that amount. On the other end of the spectrum, if you make too much, you can’t contribute to a Roth IRA or may only be able to contribute a reduced amount.

If you’re younger than 50, you can contribute a maximum of $6,000 annually into any type of IRA.

For 2020, if you’re single, you can put in a reduced amount into a Roth IRA if you make between $122,000 and $137,000; above that, you can’t contribute anything.

Related: Traditional vs. Roth IRA: How to Choose the Right Plan

For a married person filing jointly, you can contribute a reduced amount into a Roth IRA if you make between $193,000 and $205,000. (The limits are based on modified adjusted gross income .)

If you already contribute to a 401k or another retirement plan at work, you can still contribute to an IRA.

However, you may not be able to deduct all of your traditional IRA contributions if you or your spouse participates in another retirement plan at work. Roth IRA contributions might be limited if your income exceeds a certain level.

Related: 3 Easy Steps to Starting a Retirement Fund

Still unsure which IRA account you can contribute to? Use SoFi’s IRA Calculator to help you make an informed decision.

How Do I Open an IRA?

Investors thinking about opening an online IRA may want to consider whether a Roth or a traditional IRA makes sense.
Roth IRAs have some limitations that might preclude investors from getting one.

Investors who make more than $206,000 in adjusted gross income a year filing taxes jointly or $139,000 a year filing single may not be eligible to open a Roth IRA.

Vital information needed to open an IRA includes a driver’s license or ID, Social Security number, banking info like routing numbers to fund the account, name, and address of employer, and beneficiary information. After that, investors choose an asset mix and investment type that makes sense for their goals.

Related: The 7 Most Common Questions About IRAs

How Do I Roll Over Funds into an IRA?

Some investors might be thinking about opening a traditional IRA because they have left a job where they had a retirement account and want to move those funds to a new account (or they want to open a Roth IRA and roll over a Roth 401k). Reasons for doing this include the new investment company offers more investment options or the employee seeks more control over the funds or wants to combine funds from another retirement account with the employer-sponsored account.

Generally, funds from this type of account can be rolled over into a new account within 60 days.
The advantage of rolling over one retirement to another account is that investors don’t lose those funds’ tax-deferred status. If investors don’t roll over the funds, they do become taxable.
There are three ways investors can rollover retirement funds into an IRA.

Related: IRA Rollover Rules

Direct rollover

An investor’s old retirement funds administrator, perhaps at a previous job, sends funds directly to the new to an IRA or new employer-sponsored retirement plan. The investor won’t pay taxes or a penalty on this transfer as long as the transferred funds are going to a similarly classified account (Roth to Roth or 401k to traditional IRA).

Trustee-to-trustee transfer

If an investor is getting funds from an IRA, they can ask the financial institution that administers the old IRA to send funds to the new IRA. The investor won’t pay taxes or a penalty on this transfer.

Late or 60-day rollover

The IRS gives people 60 days from the date they receive a distribution from an IRA or retirement plan to roll it over to another plan or IRA. If you roll over after the 60 days has passed, it’s considered “late,” and the distribution will be taxed—and you’ll have to pay a penalty if you are younger than 59.5 years.

Related: IRA Transfer vs. Rollover: What’s the Difference?

Can You Withdraw from an IRA Before Retirement?

It depends. With a Roth IRA, there are situations–like buying your first home, adoption costs, or paying for higher education–where you can withdraw your contributions with no penalties or taxes. For example, an investor can take out up to $10,000 from a traditional IRA—or in earnings from a Roth IRA—without penalties for expenses associated with buying a first home.

Investors can also withdraw funds penalty-free for qualifying medical or educational expenses. And once you hit the age of 59.5, distributions will always be penalty-free.

Here are all the exceptions for early distributions:

•  Made to a beneficiary or estate on account of the IRA owner’s death
•  Made because you’re totally and permanently disabled
•  Made as part of a series of substantially equal periodic payments for your life (or life expectancy) or the joint lives (or joint life expectancies) of you and your designated beneficiary
•  Qualified first-time homebuyer distributions
•  Not in excess of your qualified higher education expenses
•  Not in excess of certain medical insurance premiums paid while unemployed
•  Not in excess of your unreimbursed medical expenses that are more than a certain percentage of your adjusted gross income
•  Due to an IRS levy of the IRA under section 6331 of the Code
•  A qualified reservist distribution
•  Excepted from the additional income tax by federal legislation relating to certain emergencies and disasters (see the Instructions for Form 5329 for more information), or
•  Not in excess of $5,000, and the distribution is a qualified birth or adoption distribution (see the Instructions for Form 5329 for more information)

Related: Should You Use Your Roth IRA to Buy Your First Home?

Are There Ways to Get Around IRA Contribution Limits?

Sometimes. There’s no limit to how much you can put into an IRA when you’re rolling over funds from a 401(k) or 403(b) account.

Some people also use what’s called a “backdoor Roth IRA” to get around the income limits to contribute to a Roth IRA. This involves contributing the maximum to a traditional IRA, then converting it into a Roth. (There’s no income limit for conversions.) Consult a tax professional to understand all the tax implications.

Is an IRA a Replacement for a 401(k)?

American workers have access to a 401(k) retirement plan through their employers. And, some investors might even be able to get additional 401(k) contributions in the form of an employer match. Investors who have access to a 401(k) and an IRA might be able to accelerate their retirement savings and put themselves in a better financial situation when they reach retirement age.

Related: Should You Open An IRA If You Already Have A 401(k)?

The Takeaway

The rules of IRAs can be complicated, but investing in one doesn’t need to be. SoFi Invest® is all about empowering you and your financial future. Prepare for retirement with a SoFi active or automated Roth or Traditional IRA from SoFi Invest.

Need tips on IRAs or saving for retirement in general? SoFi members can schedule a complimentary personal consultation with one of our credentialed financial advisors to answer their questions.

Looking to open a SoFi traditional or Roth IRA? Learn more about SoFi Invest today.

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AI Investing: The Ultimate Beginner’s Guide

With artificially intelligent technology on the rise across industries, learning about investing in AI is top-of-mind for many Americans. As people observe the rapid growth of innovative companies utilizing AI tech, there’s been a natural spike in interest around AI investing. Predictions that the AI market size will be worth $390.9 billion by 2025 motivates people to understand more about this business sector.

From machine learning to pattern recognition and predictive modeling, it’s not easy to keep up with different subsets of artificial intelligence and how they’re impacting businesses. Since AI is such a broad category of technology, sometimes it’s overwhelming to even understand the basics. When you’re considering investing in an AI-driven company, it’s crucial to learn as much as possible about these types of investments. If you’re curious about delving more into the topic of AI investing, check out our guide. 

This guide will cover:

What Is AI Investing?

Artificial intelligence (AI) is a series of programs and algorithms that mimic human intelligence to efficiently perform tasks usually completed by humans. The term “artificial intelligence” was coined in 1956, so AI isn’t a new concept. However, the capabilities of AI have improved drastically over the past two decades, ushering in a new era of technological advancements.   

AI touches almost every aspect of our lives. It’s hard not to notice the influence of AI technology, whether it’s at home with smart devices like Google Home and Amazon’s Alexa, or shopping online with chatbots that recognize our consumer behavior. 

AI investing, or learning how to invest in the AI market, is spiking in popularity thanks to its rapid growth. As AI becomes more integral to various companies and industries, stocks across various industries are becoming more desirable to some investors. 

However, even though research and development in this area are growing exponentially, people still need to be careful about placing bets on developing technology and tools. As with any type of investment, there will always be an element of risk involved when investing in AI.

Trends in AI Investing 

With AI investing rapidly spreading across the globe, it’s no wonder that people are paying attention to its growth more than ever. Across various fields, there are over 400 use cases and applications for AI. Leaders in AI development include tech giants like Google, Microsoft, Amazon, and IBM. At the same time, startup funding for lesser-known AI disruptors has been steadily climbing as well.


What makes AI investing particularly interesting is its potential to be sustainably lucrative. Banks and financial services firms are building powerful AI strategies and utilizing the technology to streamline fraud detection, wealth management, underwriting, and more. In construction and manufacturing, AI can streamline products and experiences. AI also majorly impacts industries in healthcare, education, and safety. 

Three main signs indicating AI investing trends are the following:

Factors to Consider Before Investing in AI

Before diving into the world of AI investing, it helps to consider both qualitative and quantitative factors. The ability to find quality investments based on market opportunities isn’t enough, because even solid, profitable companies can be a poor financial investment if the stock prices are too high for you. To position yourself to wisely purchase AI stocks with strong return potential, understand performance and valuation metrics. 

Before you decide if an AI-driven company is worth your investment, you’ll probably want to take note of the following:

  • Research companies fully. Understand a company’s business plan and its track record for success so far. What are their guidelines and processes, where are their headquarters and manufacturing facilities, and what are their growth plans for the future?
  • Look for the company’s price-to-earnings ratio. Even if you feel strongly about investing in a company, don’t let those emotions cause you to give them the benefit of the doubt. When it comes to their financials, you need to understand the ins and outs. How much debt do they have? Are they currently profitable? Understand the current share price relative to its per-share earnings, too.
  • Figure out how much risk is involved. How can you tell how much risk is involved with one company’s stock compared to the rest of the market? You can start by determining a company’s beta, or measure of volatility in relation to the broader market, before investing any funds. Calculating a company’s beta isn’t difficult, and it can save you trouble in the long run.
  • Determine if the stock has a high enough dividend to be worth it. Investors can determine which stocks pay dividends by researching financial news websites. Don’t have false expectations — you shouldn’t expect a dividend from a startup.
  • Keep an eye on the company’s stock chart. Look for some of the most simple cues from stock charts to gauge price movement. Also, consider how the company would be affected by different economic factors and potential changes to the market it serves.


Companies Shaping the Future of AI Technology

Many of the companies providing AI technology through their cloud platforms are household names, like Google, Amazon, IBM, and Microsoft. However, there are still plenty of other companies in other sectors that are shaping the future of AI investing. Below are six of the AI-investing business leaders to keep an eye on. We are not in any way recommending that you invest in these companies, rather these are examples of the leaders in investing in AI. 

1) Amazon. Amazon Web Services offers both consumer and business-oriented AI products and services and many of its professional AI services are built on consumer products. For example, the Amazon Echo brings artificial intelligence into the home through the AI bot, Alexa. 

2) Alphabet. Google’s parent company Alphabet is deeply invested in furthering its AI capabilities, along with acquiring numerous AI startups in the last several years. In addition to using AI to improve its services, a number of AI and machine learning services are sold to businesses via the Google Cloud Platform.

3) IBM. IBM has always been a leader in AI innovation, but its efforts in recent years are around IBM Watson, including an AI-based cognitive service. IBM has been acquiring multiple AI startups over the years as it competes with other industry leaders in this space like Google.

4) Microsoft. Microsoft has a wide range of AI projects that can benefit both businesses and consumers. For example, Cortana, the digital assistant that comes with Windows, is designed for business clients. On its Azure Cloud Service, Microsoft sells AI services such as bot services, machine learning, and cognitive services.

5) Alibaba Cloud. Alibaba is the top cloud computing platform in Asia. It offers business clients a sophisticated Machine Learning Platform for AI, including an intuitive, user-friendly visual interface. 

6) Salesforce. Salesforce developed Salesforce Einstein, their artificial intelligence service. Their latest initiative, which includes an extensive team of data scientists, uses machine learning to help employees streamline various tasks. It looks like this technology will also become more widely available in the near future.


Additional Resources

There are tons of helpful resources for decision-making about investing in AI. Regardless of how financially savvy you are, there’s always more to learn about how to invest in the most efficient way possible. Your financial portfolio should be as diverse and robust as possible to set you up for long-term success.

One of the best ways to start the process of educating yourself is by reading free insights from reputable technology and finance research publications. Try reading MarketWatch and Morningstar on a daily basis to keep track of the latest and most accurate company information. By analyzing a company’s financials with a critical eye before making investment decisions, you’ll protect your personal financial health.

We hope this piece could be a solid introduction to some of the concepts and trends that explain why AI has promising potential in the world of investing. AI investing presents various exciting possibilities for the future, but investors should still proceed with caution. When it comes to investing, always do your due diligence to avoid losing money. AI technology is seamlessly integrated into aspects of almost every industry. Focus on budgeting and consider investment decisions that are best for your long-term financial health.

Sources: TechJury | Datamation | Investopedia | AIthority | Forbes | Emerald Group Publishing | Deloitte | Accenture 

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