| Roth IRA Income and Contribution Limits for 2024 | ||
|---|---|---|
| Filing Status | 2024 MAGI | Contribution Limit |
| Married filing jointly (or qualifying widow(er)) | ||
| Less than $230,000 | $7,000($8,000 if age 50 or older) | |
| $230,000to $240,000 | Begin to phase out | |
| $240,000 or more | Ineligible for direct Roth IRA | |
| Married filing separately (and you lived with your spouse at any time during the last year) | ||
| Less than $10,000 | Begin to phase out | |
| $10,000 or more | Ineligible for direct Roth IRA | |
| Single, head of household, or marriedfiling separately (and you didn’t live with your spouse at any time during the last year) | ||
| Less than $146,000 | $7,000($8,000 if age 50 or older) | |
| $146,000 to $161,000 | Begin to phase out | |
| $161,000 or more | Ineligible for direct Roth IRA | |
Married filing separately and head of household filers can use the limits for single people if they have not lived with their spouse in the past year.
Roth IRA Contribution Limits
Anyone of any age can contribute to a Roth IRA, but the annual contribution cannot exceed their earned income. Let’s say that Henry and Henrietta, a married couple filing jointly, have a combined MAGI of $175,000. Both earn $87,500 a year, and both have Roth IRAs. In 2023, they can each contribute the maximum amount of $6,500 to their accounts, for a total of $13,000. This amount increases to $7,000 in 2024 for a total of $14,000 as long as they don't exceed the appropriate MAGI threshold.
Couples with highly disparate incomes might be tempted to add the higher-earning spouse’s name to a Roth account to increase the amount that they can contribute. Unfortunately, IRS rules prevent you from maintaining joint Roth IRAs—that’s why the word “individual” is in the account name; however, you may accomplish your goal of contributing larger sums if your spouse establishes their own IRA, whether they work or not.
You may be able to get around income limits by converting a traditional IRA into a Roth IRA, which is called a backdoor Roth IRA.
How can this happen? To illustrate, let’s go back to our hypothetical couple. Let’s say that Henrietta is the primary breadwinner, pulling in $170,000 a year, while Henry runs the house, earning $5,000 annually. Henrietta can contribute to both her IRA and Henry’s, up to the $13,000 maximum. In this case, they each have their own IRAs, but one spouse funds both of them.
Timing Your Roth IRA Contributions
Although you can own separate traditional and Roth IRAs, the dollar limit on annual contributions applies collectively to all of them. If an individual under age 50 deposits $3,000 in one Roth IRA during the tax year 2023, then that individual can only contribute $3,500 to another IRA in that tax year, making the total $6,500. In 2024, the additional amount increase to $4,000 for a total of $7,000 if they make an initial deposit of $3,000.
Contributions to a Roth IRA can be made up until tax filing day of the following year. Thus, contributions to a Roth IRA for 2023 can be made through the deadline for filing income tax returns, which is April 15, 2024. Obtaining an extension of time to file a tax return does not give you more time to make an annual contribution.
A couple must file a joint tax return for the spousal IRA to work, and the contributing partner must have enough earned income to cover both contributions.
If you received a tax refund, you can apply some or all of it to your contribution to savings accounts. You must inform your Roth IRA trustee or custodian which year you want the deposit attributed to, if the option is available.
Conversion to a Roth IRA from a taxable retirement account, such as a 401(k) plan or a traditional IRA, has no impact on the contribution limit; however, making a conversion adds to MAGI and may trigger or increase a phaseout of your Roth IRA contribution amount. Also, rollovers from one Roth IRA to another are not taken into account for purposes of making annual contributions.
Tax Breaks for Roth IRA Contributions
The incentive for contributing to a Roth IRA is to build savings for the future—not to obtain a current tax deduction. Contributions to Roth IRAs are not deductible for the year when you make them; rather, they consist of after-tax money. That is why you don’t pay taxes on the funds when you withdraw them—your tax bill has been paid already.
However, you may be eligible for a tax credit of 10% to 50% on the amount contributed to a Roth IRA. Low- and moderate-income taxpayers may qualify for this tax break, called the Saver’s Credit. This retirement savings credit is up to $1,000, depending on your filing status, AGI, and Roth IRA contribution.
Here are the limits to qualify for the Saver’s Credit:
- Taxpayers who are married and filing jointly must have incomes of $73,000 or less. ($76,500 or less in 2024)
- All head of household filers must have incomes of $54,750 or less ($57,375 or less in 2024).
- Single taxpayers must have incomes of $36,500 or less ($38,250 or less in 2024).
The amount of credit that you get depends on your income. For example, if you are a head of household whose AGI in the 2023 tax year shows income of $29,625, then contributing $2,000 (the maximum contribution that qualifies for the benefit) to an IRA (or employer-sponsored retirement plan) generates a $1,000 tax credit, which is the maximum 50% credit. The IRS provides a detailed chart of the Saver’s Credit.
The tax credit percentage is calculated using IRS Form 8880.
Roth IRA Withdrawal Rules
Unlike traditional IRAs, there are no required minimum distributions (RMDs) for Roth IRAs. You can take out your Roth IRA contributions at any time, for any reason, without owing any taxes or penalties.
Withdrawals on earnings work differently. In general, you can withdraw earnings without penalties or taxes as long as you are 59½ or older and have owned the account for at least five years. This restriction is known as the five-year rule.
Your withdrawals may be subject to taxes and a 10% penalty, depending on your age and whether you meet the requirements of the five-year rule.
If you meet the five-year rule:
- Younger Than 59½: Earnings are subject to taxes and penalties. You may be able to avoid taxes and penalties if you use the money for a first-time home purchase or have a permanent disability. If you pass away, your beneficiary may be able to avoid taxes on the distribution.
- 59½ or Older: No taxes or penalties.
If you don’t meet the five-year rule:
- Younger Than 59½: Earnings are subject to taxes and penalties. You may be able to avoid the penalty (but not the taxes) if you use the money for specific purposes. They include first-time home purchases, qualified education expenses, unreimbursed medical expenses, and permanent disabilities. If you pass away, your beneficiary may be able to avoid penalties on the distribution.
- 59½ or Older: Earnings are subject to taxes but not penalties.
Changes in Roth IRA Rules
The Tax Cuts and Jobs Act (TCJA) of 2017 made some changes to the rules governing Roth IRAs. Previously, if you converted another tax-advantaged account (Simplified Employee Pension (SEP) IRA, Savings Incentive Match Plan for Employees (SIMPLE) IRA, traditional IRA, 401(k) plan, or 403(b) plan) to a Roth IRA and then changed your mind, you could undo it in the form of a recharacterization.
That is no longer the case. If the conversion occurred after Oct. 15, 2018, it cannot be recharacterized back into a traditional IRA or back into its original form.
Record Keeping for Roth IRA Contributions
You do not have to report your Roth IRA contribution on your federal income tax return. However, it is highly advisable for you to keep track of it, along with your other tax records for each year. Doing so will help you demonstrate that you’ve met the five-year holding period for taking tax-free distributions of earnings from the account.
Each year that you make a Roth IRA contribution, the custodian or trustee will send you Form 5498, IRA Contribution Information. Box 10 of this form lists your Roth IRA contribution.
What Are the Rules for Putting Money in a Roth IRA?
Most people who earn income will qualify for the maximum contribution of $6,500 in 2023 ($7,000 in 2024), or $7,500 ($8,000 in 2024) for those ages 50 and older. If your income falls within the Roth IRA phaseout range, you can make a partial contribution. You can’t contribute at all if your modified adjusted gross income exceeds the limits.
Can You Contribute to a Roth IRA at Any Time?
Yes, you can open a Roth IRA at any age, as long as you have earned income (you can’t contribute more than your earned income). There are also no required minimum distributions, so you can leave your Roth IRA to your heirs if you don’t need the money.
What Is the 5-Year Rule for Roth IRAs?
The Roth IRA five-year rule states that you cannot withdraw earnings tax-free until at least five years since you first contributed to a Roth IRA. This rule applies to everyone who contributes to a Roth IRA, whether they’re 59½ or 105 years old.
The Bottom Line
While not tax deductible, contributions to a Roth IRA give you the opportunity to create a tax-free savings account. You can use this account in retirement or leave it as an inheritance for your heirs. Roth IRAs offer many of the advantages of regular IRAs, but with more flexibility. They work well for people who are more likely to need tax relief later rather than sooner. Opening one is easy, and many excellent Roth IRA providers handle these accounts.
