4 Key Facts About Roth IRA Contributions You Should Know

After gaining an understanding of what a Roth IRA is, it’s important to explore how contributions function. Familiarize yourself with the specific rules and limitations that may impact your contributions and overall financial strategy.

The tax advantages of a Roth IRA are significant—your investments grow tax-free, and withdrawals are tax-free after age 59½, provided the account has been open for at least five years. However, there are important limitations to be aware of.

Here are four key factors to consider regarding Roth IRA contribution limits and rules.

#1: Roth IRA Contributions Do Not Provide an Immediate Tax Deduction

Roth IRA contributions are made with after-tax dollars, meaning the money has already been taxed. Unlike a traditional IRA, you do not receive an immediate tax deduction. However, the advantage is that you can withdraw your contributions tax- and penalty-free at any time, and later access investment earnings without owing taxes, as long as you meet the IRS guidelines for qualified withdrawals.

#2: Roth IRAs and Traditional IRAs Share the Same Annual Contribution Limits

If you have multiple IRAs, such as both a Roth and a traditional IRA, your combined contributions cannot exceed the annual limit for each individual. For 2024, the total contribution limit is $7,000 for individuals under age 50 and $8,000 for those aged 50 and older. To ensure your contributions count toward the current year’s maximum, they must be made before the annual tax-filing deadline if intended for 2024.

#3: Roth IRA Contributions Are Subject to Income Limits

For individuals filing taxes as single in 2024, your modified adjusted gross income (MAGI) must be below $146,000 to contribute the full amount to a Roth IRA. As your income increases beyond this threshold, the allowable contribution decreases. If your MAGI reaches $161,000 or higher, you become ineligible to contribute to a Roth IRA.

For married couples filing jointly in 2024, you can contribute the maximum amount to each spouse’s IRA if your combined modified adjusted gross income (MAGI) is below $230,000. Similar to single filers, the contribution limit gradually decreases as your MAGI increases. Couples with a combined MAGI of $240,000 or more are ineligible to contribute to a Roth IRA.

#4: You Can Contribute to a Roth IRA Even if You Participate in a 401(k), 403(b), or 457 Plan at Work

Remember, Roth IRA income limits still apply. If your budget doesn’t allow contributions to both a Roth IRA and an employer-sponsored plan, it’s generally advisable to prioritize maxing out your employer-sponsored account first, especially if there is a matching contribution.

After contributing enough to receive the full employer match, consider directing additional savings to a traditional IRA or Roth IRA as the next best option.

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