How to Fund an IRA: Limits, Deductibility, and Rollovers

To fund an individual retirement account, you open a Traditional or Roth IRA with a custodian, transfer cash into it from earned income, and tell the custodian which tax year the contribution counts toward. For 2026, you can put in up to $7,500 across all your IRAs combined, or $8,600 if you’ll be 50 or older by year-end. Everything else about funding an IRA (income tests, deduction phase-outs, rollovers, backdoor conversions) sits on top of those basics.

You Need Earned Income First

Only earned income qualifies you to contribute. Wages, salary, tips, self-employment earnings, and professional fees count. Investment income, rental income, and interest don’t.¹ Your contribution can’t exceed what you earned in the year. Made $4,000? That’s your cap, regardless of the general limit.

There’s one workaround for a non-earning spouse. If you’re married filing jointly and your spouse has earned income, you can fund your own IRA using that income. Each spouse can contribute up to the annual limit as long as the couple’s combined earnings cover both accounts.² The accounts still belong to each spouse individually. IRAs are never joint.

The Funding Steps

Open an Account With a Custodian

An IRA has to be held by a custodian. Banks, brokerage firms, credit unions, and IRS-approved nonbank entities all qualify.³ What differs between them is investment selection, fees, and platform quality. Some brokerages charge nothing annually; others charge around $25 a year, sometimes waived for electronic statements or a minimum balance. Compare before you open, since moving later is doable but adds steps.

Move Cash Into the Account

Contributions have to be in cash. You can’t contribute stock you already own, real estate, or other property directly.¹ Three common ways to get money in:

Electronic bank transfer (ACH) linked through the custodian’s website. Funds usually settle in one to two business days.
A check mailed to the custodian’s deposit address with your account number in the memo line. Slower, but it works when ACH isn’t set up.
Your tax refund, sent directly to the IRA by filing Form 8888 with your return.

Tell the Custodian Which Year the Contribution Is For

This is where people slip up. Every contribution has to be tagged to a specific tax year. You have from January 1 through the April tax filing deadline of the following year to contribute for a given year, so a 2025 contribution can be made as late as April 15, 2026.⁴ Most custodians default to the current calendar year if you don’t specify, which can waste a prior-year opportunity that doesn’t come back.

The custodian reports the contribution to the IRS on Form 5498, showing both the amount and the year it was designated for. Check your confirmation for the year before you move on.

How Much You Can Contribute in 2026

The 2026 limit is $7,500, up from $7,000 in 2024 and 2025. If you’re 50 or older by the end of the year, you get an extra $1,100 catch-up, for a total of $8,600.⁵ The cap applies across all your IRAs combined. You can split contributions between a Traditional and a Roth in the same year, but the total can’t exceed the limit.

Going over the limit triggers a 6% excise tax on the excess for every year it stays in the account.⁶ It compounds annually, so fixing an overcontribution quickly matters.

Roth IRA Income Limits

Roth IRAs add an income test on top of the earned income requirement. Direct Roth contributions phase out based on modified adjusted gross income (MAGI). The 2026 ranges:⁵

Single or head of household: $153,000 to $168,000. Below $153,000, you can contribute the full amount; above $168,000, no direct Roth contribution at all.
Married filing jointly: $242,000 to $252,000.
Married filing separately: $0 to $10,000.

Inside the phase-out range, your maximum shrinks proportionally. The IRS rounds the reduced amount up to the nearest $10, and it won’t drop below $200 until the phase-out closes entirely.⁷ Putting in more than your reduced limit is an excess contribution and gets hit with the same 6% penalty.

Whether a Traditional IRA Contribution Is Deductible

The right to contribute to a Traditional IRA and the right to deduct that contribution are two different questions. Anyone with earned income can contribute. Whether you can deduct it depends on your income and whether you or your spouse are covered by a workplace retirement plan.

If neither spouse is covered by an employer plan, the full contribution is deductible at any income level.⁸ When a workplace plan is involved, deductibility phases out at these 2026 MAGI levels:⁵

Single covered by a workplace plan: $81,000 to $91,000.
Married filing jointly, contributing spouse covered: $129,000 to $149,000.
Married filing jointly, contributing spouse not covered but the other spouse is: $242,000 to $252,000.
Married filing separately, covered by a workplace plan: $0 to $10,000.

Above the phase-out, you can still make a Traditional IRA contribution. It just isn’t deductible. Non-deductible contributions have to be tracked on Form 8606, which records your after-tax basis. Skipping the form carries a $50 penalty, and the bigger risk is losing track of which dollars were already taxed. That leads to paying tax on the same money twice when you withdraw it.⁹

Rolling Money in From a 401(k) or Another IRA

Regular contributions aren’t the only way to add money. You can also move funds in from an employer plan like a 401(k) or 403(b), or from another IRA. Rollovers don’t count against your annual contribution limit.¹⁰

A direct rollover, sometimes called trustee-to-trustee, has the old plan send the money straight to your new IRA custodian. You never touch it. Nothing is withheld, there’s no deadline pressure, and there’s no cap on how often you can do it. Use this method whenever the option exists.

An indirect rollover has the old plan send a check to you. From the date you receive it, you have 60 days to deposit the full distribution into an IRA. Miss the window and the whole amount becomes taxable income, plus a 10% early withdrawal penalty if you’re under 59½.¹¹ There’s another catch on indirect rollovers from employer plans: the plan is required to withhold 20% for federal taxes. To roll over the full amount, you have to come up with the missing 20% from other funds and claim the withholding back when you file.

You’re limited to one indirect IRA-to-IRA rollover per 12-month period across all your IRAs. That cap doesn’t apply to direct trustee-to-trustee transfers or to rollovers from employer plans into IRAs.¹²

Backdoor Roth for High Earners

If your income exceeds the Roth phase-out, there’s still a route in. You make a non-deductible contribution to a Traditional IRA (no income limit for that) and then convert it to a Roth. The conversion isn’t capped by income or by any annual amount.

The move works cleanly when your Traditional IRA balance is zero before you start. If you already hold pre-tax Traditional IRA money from earlier deductible contributions or a rollover, the IRS applies a pro rata rule to the conversion. You can’t isolate the after-tax dollars. The taxable and non-taxable portions are calculated from the ratio of pre-tax to after-tax money across all your Traditional IRAs, which can turn most of a backdoor conversion into a taxable event.

Report the non-deductible contribution on Form 8606 and convert soon after the contribution settles. Any gains between contribution and conversion are taxable.⁹

Fixing an Overcontribution

If you put in too much, the cleanest fix is to withdraw the excess plus any earnings it generated before your tax filing deadline, including extensions. The IRS then treats the excess as if it were never contributed, and the 6% excise tax doesn’t apply. The withdrawn earnings are taxable in the year of the contribution, and if you’re under 59½, those earnings also get the 10% early distribution penalty.¹³

If you already filed without correcting the excess, there’s a second window: withdraw it within six months of the original return due date, then file an amended return marked “Filed pursuant to section 301.9100-2” at the top.¹³ Leave the excess past both deadlines and you owe the 6% for that year and every year after until it’s gone. You can also absorb the excess by contributing less than the limit the next year, but the 6% still applies for the year the excess sat in the account.

1
Internal Revenue Service. Publication 590-A (2025), Contributions to Individual Retirement Arrangements (IRAs)
2
Internal Revenue Service. Retirement Topics – IRA Contribution Limits
3
Internal Revenue Service. Approved Nonbank Trustees and Custodians
4
Internal Revenue Service. Traditional and Roth IRAs
5
Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
6
Office of the Law Revision Counsel. 26 USC 4973 – Tax on Excess Contributions to Certain Tax-Favored Accounts and Annuities
7
eCFR. 26 CFR 1.408A-3 – Contributions to Roth IRAs
8
Internal Revenue Service. IRA Deduction Limits
9
Internal Revenue Service. 2025 Instructions for Form 8606
10
Office of the Law Revision Counsel. 26 USC 402 – Taxability of Beneficiary of Employees’ Trust
11
Internal Revenue Service. Topic No. 413, Rollovers From Retirement Plans
12
Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
13
Internal Revenue Service. Instructions for Form 5329 (2025)