The Roth IRA contribution limits for 2024 are $7,000 per person, with an additional $1,000 catch-up contribution for people who are 50 or older. There is a $500 increase from 2023.
Roth IRA income limits for 2024
Roth IRA contribution limits for 2024 are based on your annual earnings. If you are single or a head of household and earn $146,000 or less, you can contribute up to $7,000 per year. If your aggregated gross income is between $146,000 and $161,000, you can still make a partial contribution with a lower value.
Married couples filing jointly can contribute up to $7,000 each if their combined income is less than $230,000. You can still make partial contributions if your aggregated gross income is between $230,000 and $240,000.
What is a Roth IRA?
A Roth IRA is a tax-free retirement savings account that allows you to make after-tax contributions to save towards retirement. Your Roth investments grow tax-free. You will not owe taxes on dividends and capital gains. Once you retire, your withdrawals will be tax-free as well.
Roth vs. Traditional IRA
The Roth IRA and Traditional IRA have the same annual contribution limits. Roth IRA allows you to make after-tax contributions towards retirement. In comparison, the Traditional IRA contributions can be tax-deductible or after-tax, depending on your income. Additionally, your Traditional IRA savings grow tax-deferred. Unlike Roth Roth, you will owe income taxes on your withdrawals.
Roth IRA Rules
The Roth IRA offers a lot of flexibility and few constraints. These are some of the Roth IRA rules that can help you maximize the benefits of your tax-free savings account.
Easy and convenient
Opening a Roth IRA account is a great way to plan your financial future. The plan is an excellent saving opportunity for many young professionals with limited access to workplace retirement plans. Even those with 401k plans with their employer can open a Roth IRA.
Flexibility
There is no age limit for contributions. Minors and retired investors can invest in a Roth IRA if they earn income.
No investment restrictions
There is no restriction on the type of investments in the account. Investors can invest in any asset class that suits their risk tolerance and financial goals.
No taxes
There are no taxes on the distributions from this account once you reach 59 ½. Your investments will grow tax-free. You will never pay taxes on your capital gains and dividends, either.
There are no penalties if you withdraw your original investment
While not always recommended, a Roth IRA allows you to start your original dollar contributions (but not the return from them) before reaching retirement, penalty and tax-free. Say you invested $10,000 several years ago. And now the account has grown to $20,000. You can withdraw your initial contribution of $10,000 without penalties.
Diversify your future tax exposure.
A Roth IRA is ideal for investors in a lower tax bracket but expect higher taxes in retirement. Since most retirement savings sit in 401k and investment accounts, a Roth IRA adds a flexible tax-advantaged component to your investments. Nobody knows how the tax laws will change when you need to take out money from your retirement accounts. That is why I highly recommend diversifying your mix of investment accounts and taking full advantage of your Roth IRA.
No minimum distributions
Unlike 401k and IRA, Roth IRA has no minimum distribution requirements. Savers can withdraw their savings as they wish or keep them intact.
Legacy Planning
A Roth IRA is a great tool for general wealth transfer planning. If you decide to leave your Roth IRA to your heirs, they will not pay taxes on their distributions.
Earnings cap
You can’t contribute more than what you earned for the year. If you made $6,000 in 2024, you could only contribute $6,000 to your Roth.
