IRAs Part II – Contributions And Distributions

This post is a follow-up to my previous post in which I discussed some of the basics concerning Individual Retirement Accounts ("IRAs"). It can be found here if you haven't read that post yet. In this "Part 2" post, I'll discuss some of the limitations and tax implications of contributions to and distributions from IRAs.

As noted in my prior post, the tax advantages of an IRA depend on whether the IRA is classified as a "Traditional" or "Roth" IRA. I'll discuss each of those separately here.

General Limitations

As a general matter, taxpayers can only contribute a certain amount to IRAs each year.¹ This amount is adjusted on an annual basis to account for a "cost of living adjustment," which is, in turn, computed based on annual core inflation.² For 2023, this amount was $6,500³, but was increased to $7,000 for 2024⁴.