A Roth IRA is one of the best retirement accounts you should consider if you are planning to save for retirement. This account allows you to make contributions with after-tax money, grow your account tax-free, and withdraw your funds tax-free. The IRS has Roth IRA income limits that determine your eligibility to make contributions to the account every year.
Another retirement account that resembles the Roth IRA is the traditional IRA. With a traditional IRA, your contributions might be tax-deductible, you grow your account on a tax-deferred basis and pay applicable tax during retirement.
Unlike the traditional IRA where your income level does not affect your eligibility to make contributions; there are Roth IRA income limits that determine your eligibility to make contributions the the Roth account. That is your income will directly affect your eligibility to make contributions to a Roth IRA.
Here is everything you need to know about Roth IRA income limits in 2024.
Roth IRA income limits in 2024
One of the biggest drawbacks of the Roth IRA is that higher-income earners might not qualify to make contributions. The Internal Revenue Service has Roth IRA income limits that determine your eligibility to make contributions.
Your modified adjusted gross income (MAGI) together with your filing status are factors used to determine the income limits to the Roth IRA each year. The modified AGI is simply your adjusted gross income plus deductions, exemptions, etc. If your modified AGI falls outside of the limit, you will not be eligible to make contributions to a Roth IRA that year.
For 2024, your Modified AGI must be under $161,000 if you are filing single and $240,000 when filing jointly to contribute to your Roth IRA. For 2023, your Modified AGI must be under $153,000 if you are filing single and under $228,000 if you are filing jointly, to make contributions to your Roth IRA.
Roth IRA income limits in 2024 in more details
- If you are single or head of a household and your modified AGI is less than $156,000 you can make the maximum contribution which is $7,000 in 2024. If your MAGI is equal to or greater than $156,000 but less than $161,000, you will qualify for a reduced contribution. For any modified AGI equal to or greater than $161,000, you will not be eligible to make contributions to a Roth IRA in 2024.
- If you are married and filing jointly and your modified AGI is less than $230,000, you can contribute up to the limit. On the other hand, if your modified AGI is equal to or greater than $230,000 but less than $240,000, you will be eligible to contribute a reduced amount. For modified AGI greater or equal to $240,000, you will not be eligible to make contributions to a Roth IRA in 2024.
- If you are married but filing separately and your modified AGI is equal to or greater than $10,000, you will not be eligible to make contributions to a Roth IRA for that year. A reduced amount will be allowed if your income is under $10,000 under the same filing status.
Roth IRA contribution limits in 2024 and 2023
Each retirement plan comes with contribution limits every year and they are set by the IRS in response to economic conditions. Contribution limits show how much you can contribute to the account in a given tax year.
For 2024, the Roth IRA contribution limits are $7,000 or $8,000 If you are 50 or older. For the 2023 tax year, the contribution limits to a Roth IRA are $6,500 or $7,500 if you are 50 or older.
In case you have a traditional IRA and a Roth IRA, your contribution limits to both accounts will be the maximum contribution limits allowed for an IRA. For example, you can contribute $2,000 to your Roth account and $5,000 to a traditional IRA. Since the cumulative contributions are under $7,000, your contributions will be allowed.
If you have a spousal IRA and a Roth IRA, you can contribute $7,000 to your IRA and $7,000 to the spousal IRA for a total of $14,000 in 2024. If you and your spouse are 50 and older, the total contributions to your IRAs will be $16,000 in 2024.
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Alternatives to Roth IRA
If you are not eligible to make contributions to your Roth IRA, try the Roth IRA alternatives. For example, if you or your spouse earns a high income, your combined modified AGI can put you above acceptable Roth IRA income limits. This does not mean you are not eligible to make contributions to other retirement accounts.
The best alternative to a Roth IRA is the traditional IRA. The traditional IRA comes with the same contribution limits as the Roth IRA. The only difference is that some of your contributions may be tax deductible which allows you to grow the account on a tax-deferred basis and pay applicable taxes during retirement.
You can also contribute to employer-sponsored plans such as 401(k) plans. These plans come with higher contribution limits which is essential for those who want to grow their retirement savings fast. In 2024, you can contribute up to $23,000 to your 401(k) plan or $30,500 if you are 50 or older.
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Roth IRA vs. traditional IRA
The Roth IRA and traditional IRA are individual retirement accounts and you can open them from a bank, brokerage firm, or other financial institutions that offer retirement services.
The contribution limits to both accounts are the same for 2023. Both accounts have a maximum contribution of $7,000 or $8,000 if you are 50 or older.
The main difference between a Roth IRA and a traditional IRA is that the Roth account does not give you upfront tax benefits because you make contributions with after-tax money. For the traditional IRA, on the other hand, you might get upfront tax benefits because you make contributions with after-tax wages.
You grow your Roth IRA account tax-free and pay no tax on qualified distributions. For the traditional IRA, you grow your account on a tax-deferred basis and pay applicable tax on your distributions.
Your Roth IRA does not come with required minimum distributions(RMDs) when you turn 73. This benefit holds only when the account belongs to the original owner. Once the original owner dies, beneficiaries of the account must start taking distributions from the account. Descendants who meet the IRS exceptions such as a surviving spouse will be exempt from taking RMDs.
More details: Traditional IRA vs Roth IRA: What is the difference?
Benefits of Roth IRA
When it comes to individual retirement accounts, the Roth IRA stands out due to its unique tax benefits. This plan allows you to grow your account tax-free and pay no taxes on qualified distributions.
A qualified distribution on a Roth IRA Roth IRA meets the following conditions:
- You are at least 59½, or
- Taken distributions due to a permanent disability, or
- It is made by a beneficiary of the account, or
- Made by your estate after you died
Unlike traditional IRA or employer-sponsored plans such as 401(k), the Roth IRA does not come with required minimum distributions(RMD). As long as the account belongs to the original owner, there will be no RMDs at the age of 73. You can also transfer the account to beneficiaries tax-free.
Additionally, the Roth IRA is easy to set up and manage the Roth IRA. Finally, the account comes with a lot of investment options compared to employer-sponsored plans which include individual stocks, bonds, mutual funds, index funds, and more.
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Drawbacks of Roth IRA
The biggest drawback of a Roth IRA is that it does not offer upfront tax benefits. Every dollar you contribute to your Roth account will come from after-tax wages. This makes it difficult for many people to make large contributions to the account.
The Roth IRA contribution limits are also lower than 401(k) plan limits. For example, if you had a Roth 401(k) plan, your max contributions limits would be $23,000 or $30,500 if you are 50 or older in 2024. With the Roth IRA, on the other hand, you can only contribute up to $7,000 or $8,000 if you are 50 or older for the same tax year. For this reason, low contribution limits make it harder to grow your retirement savings faster.
Another disadvantage of a Roth IRA is that high-income earners may not be eligible to make contributions to the account. Your eligibility to make contributions to a Roth IRA will depend on your modified AGI and filing status.
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