A Roth Individual Retirement Account (IRA) is a popular retirement savings account that allows eligible individuals to contribute post-tax income and enjoy tax-free growth and tax-free withdrawals in retirement. Understanding the contribution limits to a Roth IRA is crucial for effective retirement planning. This article will explain how much you can put into a Roth IRA each year, along with some considerations that could impact your contribution limits.
Roth IRA Contribution Limits
The maximum amount you can contribute to a Roth IRA is $6,000 per year if you’re under age 50. If you’re age 50 or older, you’re allowed to contribute an additional $1,000 per year as a “catch-up” contribution, making your total maximum contribution $7,000.
However, these amounts are subject to change, so it’s important to check the IRS’s updated contribution limits each year.
Income Limits
While Roth IRAs have many benefits, they also have income restrictions. In other words, if you make too much money, you might not be able to contribute to a Roth IRA. The income limits vary based on your tax filing status and are adjusted annually.
If you’re a single filer, you can contribute the maximum to a Roth IRA if your modified adjusted gross income (MAGI) is less than $125,000. The contribution limit then phases out until your income reaches $140,000, at which point you can’t contribute at all.
For married couples filing jointly, the phase-out range is between $198,000 and $208,000 of MAGI.
It’s critical to check the updated income limits each year on the IRS website or consult with a financial advisor.
Excess Contributions
If you contribute more to your Roth IRA than the allowable limit, you’ll have an excess contribution, which is subject to a 6% tax penalty. You can correct excess contributions by withdrawing the excess amount (and any earnings on it) before the tax-filing deadline for that year, including extensions.
Converting a Traditional IRA to a Roth IRA
If your income exceeds the limits for contributing to a Roth IRA, you may consider a strategy known as a “backdoor Roth IRA,” where you contribute to a traditional IRA and then convert it to a Roth IRA. There are no income limits for converting a traditional IRA to a Roth IRA, but there may be tax implications, so it’s wise to consult with a financial advisor.
Conclusion
Roth IRAs can be an excellent tool for retirement savings, providing tax-free income in retirement. However, they come with specific contribution and income limits. Always stay updated with the current year’s limits and consult with a financial advisor to ensure you’re making the most of your retirement savings strategy. Remember, saving for retirement is a long-term game, and every contribution counts.
