Saving for retirement as early as possible is one of the smartest ways to build generational wealth. One way to start saving for retirement is to open an IRA (Roth IRA or traditional IRA) and make contributions every year. While you can open an IRA at any time, you will need to meet eligibility requirements before making contributions to the account.
To be eligible to contribute to a Roth IRA, you must meet income limits set by the IRS. If you are filing single, you cannot contribute to a Roth IRA when your income is over $161,000 in 2024. on the other hand, if you are married and filing jointly, you will not be eligible to contribute to a Roth IRA when your joint income is over $240,000 in 2024.
For the traditional IRA, you can make contributions regardless of your age and income but your contributions might not be deductible. The traditional IRA deductions depend on your income, other retirement benefits you have from work, and your filing status.
Here is how to check if you are eligible to contribute to a Roth IRA, traditional IRA, or 401(k) plan.
Who is eligible to contribute to a Roth IRA in 2024?
Roth IRA eligibilities are a bit different from a traditional IRA. Your eligibility to contribute to a Roth IRA will depend on your modified adjusted gross income (MAGI). You will not be able to contribute to a Roth IRA the year your MAGI is higher than acceptable limits.
use the following table to check if you are eligible to contribute to a Roth IRA in 2024.
The IRS has phase-out ranges that determine your eligibility to contribute to a Roth IRA and how much you can contribute. With incomes lower than these phase-out ranges you can contribute up to the maximum. If your income is higher than these ranges, you will not be eligible to make contributions to a Roth IRA for that year.
| Filing status | Phase-out range |
| Single tax-payer or head of household | $146,000 and $161,000 |
| Married, filing jointly | $230,000 and $240,000 |
| Married, filing separately | $0 to $10,000 |
If your modified adjusted gross income is over the limits shown in the table for each category, you will not be eligible to contribute to a Roth IRA in 2024. For example, if your income is $180,000 and filing single, you cannot contribute to a Roth IRA since your income is higher than the limit of $161,000. For all incomes between these ranges, you will have a partial contribution. If your income is lower than lower limit for each category, you will be eligible to make full contributions to your Roth IRA account.
How much can I contribute to a Roth IRA in 2024?
The contribution limits to a Roth IRA in 2024 are $7,000 or $8,000 if you are 50 or older. For 2023, you can contribute up to $6,500 or $7,500 if you are 50 or older.
Required minimum distributions to a Roth IRA for 2024
As the original account owner, a Roth IRA does not require you to take RMDs. You can also pass the account to your heir tax-free. However, your decedents are required to take RMDs with some exceptions.
Am I eligible to contribute to a traditional IRA in 2024?
If you are looking for ways to boost your retirement savings, a traditional IRA will be a great choice. With a traditional IRA, your contributions may be tax-deductible and you can make contributions even if you have a 401(k) plan. If your modified adjusted gross income(MAGI) is higher than the IRS limits, you might not qualify for the deduction.
There are no income limits on traditional IRAs and as long as you are earning an income, you can make contributions.
Having other employer-sponsored retirement accounts such as 401(K) or 403(b) will also affect your traditional IRA deductions.
Traditional IRA income phase-out ranges for tax deductions in 2024
- You are single with other benefits from the workplace such as 401(k). The phase-out income is between $77,000 and $87,000. If your income is higher than $87,000, you will not qualify for deductions. For income under $77,000, all of your traditional IRA contributions will be deductible. Finally, if your income is between $77,000 and $87,000, you will qualify for a partial deduction.
- Married filing jointly and the spouse who is making contributions is covered by the workplace. The phase-out income is between $123,000 and $143,000. If your income is higher than $143,000, you will not qualify for deductions. For income under $123,000, all of your traditional IRA contributions will be deductible. Finally, if your income is between $123,000 and $143,000, your contribution will be partially deductible.
- You are making contributions but are not covered by your workplace retirement but your spouse is covered. The phase-out range is between $230,000 and $240,000.
- Finally, if you are married, filing separately, and do not have retirement benefits from work, the phase-out income is based on your annual cost of living and remains between $0 and $10,000.
Required minimum distributions for traditional IRA
One thing to keep in mind with a traditional IRA is that it behaves more like a 401(k) for tax requirements. Not only that you pay applicable tax on your distributions, but you are also required to start taking RMDs when you turn 73, according to the IRS. Failure to take all your distributions will result in a 50% penalty on the money you did not take out on time.
How much can I contribute to a traditional IRA in 2024?
The maximum contribution to a traditional IRA in 2024 is $7,000 or $8,000 when you are 50 or older. For 2023, the contribution limits to a traditional IRA are $6,500 or $7,500 if you are 50 or older.
Am I eligible to open a 401(K) plan?
Before you open a 401(K) or sign up for it, you will need to meet eligibility requirements through your employer. Since the 401(K) plan is offered by employers, you must work for a company that has these benefits. On top of that, your employer must approve you before you can sign up. For example, if you are a contractor, you might not qualify for these benefits until you are hired into the company. In addition, some employers might have you work a grace period before you are eligible for 401(K) benefits.
Once you have met your company’s 401(k) requirements, the company will establish the plan on your behalf and directions to create an online account will be given to you through your orientation. You can also ask your human resources how to create an online account. Once you can access your 401(k) plan online, you can change contribution percentages and elect investments of your choice.
How much can I contribute to a 401(k) plan?
After signing up for your 401(K), how much you can contribute will depend on your income and contribution limits allowed by the IRS. For 2024, you can contribute up to $23,000 or $30,500 if you are who are 50 or older.
If your wages for the year are much lower than these limits, however, you can only contribute up to your annual income. For example, let’s assume that you only made $16,500 in 2024. This means that you cannot contribute more than $16,500 for the year. Your plan might also have limitations to how much you can contribute such as 50% of your gross income. If this is the case, you can only contribute up to half of your gross income or $8,250 even if the IRS limit is $23,000.
Required minimum distributions(RMDs) for 401(k) plan in 2024
During retirement, you will pay an income tax on your 401(k) distributions. Additionally, you will be required to take requirement minimum distributions when you turn 73. Failure to take RMDs will lead to paying a heavy tax penalty on the amount you did not withdraw from your account.
