Roth IRA contribution limits in 2024

A Roth IRA is a type of individual retirement account(IRA) where your contributions come from after-tax wages. You then grow the account tax-free and pay no tax on qualified distributions during retirement. The Roth IRA contribution limits in 20204 are $7,000 or $8,000 if you are 50 or older. You can open a Roth IRA from your local bank or online financial institutions such as brokerage companies.

Here is what you need to know about Roth IRA contribution limits and income limits to make contributions.

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Roth IRA contribution limits in 2024

The Roth IRA max contribution limits in 2024 are $7,000 or $8,000 for people who are 50 or older. For 2023, you can contribute up to $6,500 or $7,000 if you are 50 or older.

In case your income for the year is less than these Roth IRA contribution limits, the maximum amount you can contribute should not exceed your income. For example, if you made only $4,000 for the year, you will be able to contribute up to $4,000.

Roth IRA income limits in 2024

Before you start contributing to your Roth IRA or worrying about Roth IRA max contribution; you need to know if you are eligible to contribute in the first place.

Your eligibility to contribute to a Roth IRA will depend on your modified adjusted gross income (MAGI) and your filing status. If your modified AGI is higher than acceptable limits, you will not be eligible to make contributions for that year. Please refer to the following table for Roth IRA income limits and contribution eligibility.

Filing status	Modified AGI is	Contribution limits
single or head of household	greater or equal to $146,000 but less than $161,000	a reduced amount
single or head of household	less than $146,000	contribute up to the limit
single or head of household	greater than $161,000	$0
married filing separately	greater or equal to $10,000	$0
married filing separately	less than $10,000	reduced amount
married filing jointly	greater or equal to $240,000	$0
married filing jointly	greater or equal to $230,000 but < $240,000	a reduced amount
married filing jointly	less $230,000	up to the limits

You might also like: Who is eligible to contribute to a Roth IRA?

Roth IRA early withdrawal penalty

Unlike other retirement plans, you can withdraw your contributions to Roth IRA tax-free and without a penalty at any time. This is because the amount you contributed to a Roth IRA is already taxed. So, you cannot pay taxes twice on the same money.

With that being said, you cannot withdraw earnings from your contributions early without a penalty. Any earnings you withdraw from your Roth IRA before you turn 59 ½ and you have not had the account for at least 5 years trigger a 10% penalty and taxes on those returns.

The only way you can withdraw your contributions and earnings without a penalty and tax-free is when your Roth IRA is at least 5 years old and you are at least 59 ½. You might get away with a Roth IRA withdrawal penalty if you want the money due to disability, paying for school, or buying a house for the first time.

Required minimum distributions(RMDs) for Roth IRAs

A required minimum distribution is an amount you are required by law to withdraw from some retirement accounts when you turn a certain age. Most accounts require that you start taking RMDs when you turn 73. Accounts that require RMDs include but are not limited to traditional IRA, SEP-IRA, SIMPLE IRA, 401(K), 403(b), etc.

Failure to take RMDs can result in a 50% penalty on the money you did not withdraw on time.

The Roth IRA does not require RMDs at any age as long as the original account owner is still alive. However, when the original account owner dies, the entire Roth IRA account must be distributed within 10 years. That is beneficiaries must start taking RMDs and the account should be emptied within 10 years from the date of death of the original account owner.

The beneficiaries may be exempt from this rule if they fall into one of the following categories:

Surviving spouse
A disabled or chronically ill person
A child who has not reached the proper age,
A person who is not more than 10 younger than the original account owner

Who can open a Roth IRA?

There is no age limit to who can open a Roth IRA account. However, if the account holder is a minor (under the age of 18 or 21 in some states), the account must be a custodial Roth IRA. The account management and all activities within a custodial IRA must be handled by a parent or a legal guardian until the minor reaches of appropriate age.

In the case of a non-working spouse, the working spouse can open and make contributions to the spouse’s account. For example, if your wife is a stay-at-home mom, you can open a spousal Roth IRA and make contributions to the account on behalf of her behalf. A spousal IRA allows you and your spouse to boost your retirement savings.

To qualify for a spousal IRA, you must be legally married and file a joint tax return.

Benefits of a Roth IRA

A Roth IRA is one of the best retirement accounts for retirement savings. Many people do not like this plan because they contribute after-tax money. However, the pros of this account outweigh its cons.

Here are the benefits of having a Roth IRA.

Roth IRAs do not have required minimum distributions(RMDs) for the original account owner
There is no age limit to open a Roth IRA
The account beneficiaries will inherit the account tax-free
You get to grow your account tax-free
Contributions to the Roth IRA can be taken out without penalty
You pay no tax on qualified distributions during retirement

What are the disadvantages of a Roth IRA?

Income limitations. Roth IRA contributions are limited by income level. If you make over a certain amount per year, you are not eligible to contribute to a Roth IRA.

Contribution limits. Roth IRAs have contribution limits. For 2024, you can only contribute up to $7,000 ($8,000 if you’re age 50 or older)

No immediate tax deduction. Unlike traditional IRAs, contributions to a Roth IRA are not tax-deductible. This means you do not get any immediate tax relief when you contribute to your Roth IRA.

Minimum holding period. To withdraw earnings tax and penalty-free, Roth IRA you must hold the account for at least five years and be age 59 1/2 or older.

Limited investment options. Depending on the broker, you might have limited investment options. Some brokerages may not have a wide range of investment choices, limiting the diversification potential of your portfolio.

No RMD advantage for heirs. While Roth IRAs do not have RMDs during the owner’s lifetime, non-spouse heirs are required to empty the account within 10 years of the owner’s death, effectively eliminating the stretch IRA strategy.

Where to invest my IRA money?

Investing your IRA funds depends heavily on your age, risk tolerance, and long-term financial goals. If you’re in your 20s or 30s, you should invest in assets with potentially larger returns such as stocks and stock-based funds. These investments offer significant growth potential, although they are subject to higher volatility than more stable investment options like bonds or money market funds.

Mutual funds and ETFs offer a way to invest in a diversified portfolio of stocks and they are usually managed by professional fund managers. This can help spread your risk across different sectors and geographical regions, reducing the impact of any one company or sector’s poor performance on your overall portfolio.

If you are closer to retirement, investing your IRA money in bonds and money market funds while holding a small percentage of equities is a great way to invest your IRA money. This option can provide regular income and is typically considered to be less risky than holding a lot of stocks.

Real estate is another alternative way to invest your IRA money. Real estate investment trusts (REITs), for example, can provide a way to invest in real estate without the need to buy, manage, or maintain physical properties yourself.