It’s a great time to start focusing on your retirement contribution goals for 2024, as the Internal Revenue Service has recently announced the contribution limits for retirement accounts, including Roth IRAs.
The Roth IRA, which stands for individual retirement account, has gained significant popularity over the last twenty years due to its appealing tax benefits. If you anticipate meeting the qualifications to contribute to a Roth IRA, now is the time to review the new limits and create a plan of action.
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2024 Sees Higher Roth IRA Limits
Each fall, the IRS announces inflation-adjusted retirement contribution amounts. Following the first increase in Roth IRA contribution limits since 2019, there’s another rise in 2024.
The maximum contribution to a Roth IRA for 2024 is $7,000, up from $6,500 in 2023. For individuals aged 50 and over, the contribution cap increases to $8,000.
If you haven’t contributed to your Roth IRA for 2023, there’s still time to do so. By now, you’re in a favorable position to both maximize your 2023 Roth IRA contributions and plan for the new year. You have until April 15, 2024 to fund your 2023 Roth IRA.
|
Age |
2024 Roth IRA Contribution Limits |
2023 Roth IRA Contribution Limits |
|---|---|---|
|
Under 50 |
$7,000 |
$6,500 |
|
50 or over |
$8,000 |
$7,500 |
Data source: IRS.
Ensure You Qualify
Not everyone is eligible to contribute the maximum amount to a Roth IRA.
For instance, if you contribute money to a Roth IRA on behalf of your 12-year-old son and he earns $8,000 from part-time work in 2023, you can contribute the maximum amount ($6,500) to his Roth IRA.
However, if your child’s income drops to $3,000 in 2024, your contribution to his Roth IRA would be limited to his taxable compensation for the year. No individual is allowed to contribute more to a Roth IRA account than they have earned for the year.
There is also caution to be exercised when entering six-figure income territory. Once your income exceeds the threshold, you will be unable to make direct contributions to a Roth IRA in 2024.
For example, if your filing status is single for 2024, you won’t be able to contribute the maximum amount to a Roth IRA if your income exceeds $146,000. However, reduced contributions are still possible until your income reaches $161,000, in what is termed the phaseout range. As long as your income is below $146,000, you remain eligible to make direct contributions to a Roth IRA.
Be sure to review the Roth IRA phaseout ranges if you’re filing as single, head of household, or married filing jointly in 2024.
|
Filing Status |
2024 Income Phaseout Range |
2023 Income Phaseout Range |
|---|---|---|
|
Single or head of household |
$146,000 to $161,000 |
$138,000 to $153,000 |
|
Married filing jointly |
$230,000 to $240,000 |
$218,000 to $228,000 |
Data source: IRS.
Unmissable Roth IRA Benefits
Before contributing to a Roth IRA, it is crucial to ensure you meet the requirements and then weigh the pros and cons of contributing to the account. Here are a few benefits to facilitate your decision-making process:
- Tax-free gains and dividends during retirement.
- No required minimum distributions.
- Ability to withdraw original contributions at any time without paying income tax or early withdrawal penalty.
If these benefits resonate with you, opening a Roth IRA or increasing your contributions in 2024 could be a wise move. If you anticipate a continued increase in your income, taking advantage of the opportunity to make contributions to the account now is advisable. The more you contribute, the more capital you’ll have available to invest in assets of your choice. If you aim to build a six-figure Roth IRA, it’s essential to set and achieve your contribution goals now.
