Contributing to a Roth IRA

What is a Roth IRA?

A Roth IRA is a retirement savings account that allows your money to grow tax-free. Unlike traditional IRAs, contributions to a Roth IRA are made with after-tax dollars, meaning you’ve already paid taxes on the money you contribute. The big benefit: no taxes on withdrawals in retirement!

 

Who Can Contribute?

• Income Limits: Your ability to contribute depends on your Modified Adjusted Gross Income (MAGI).
  • For 2024:
    • Single filers: You can contribute the full amount if your income is below $161,000. Contributions start to phase out at $146,000.
    • Married filing jointly: You can contribute fully if your combined income is below $240,000. Phase-out starts at $230,000.

Please visit this Charles Schwab Link for a detailed Phase-Out Schedule:
https://www.schwab.com/ira/roth-ira/contribution-limits
(scroll down to the Tax Year 2024 Table)

• Age: There’s no age limit for contributing as long as you have earned income.

 

Contribution Limits

• For 2024:
  • The maximum contribution is $7,500 per year.
  • If you’re 50 or older, you can make an additional catch-up contribution of $1,000, bringing your total to $8,000.

 

When Can I Withdraw?

• Tax-Free Withdrawals: You can withdraw your contributions at any time without taxes or penalties.
• To withdraw earnings tax-free:
  • You must be 59½ years old, and
  • Your account must be at least 5 years old.

 

Benefits of a Roth IRA?

1. Tax-Free Growth: All earnings grow tax-free, meaning more money for you in retirement.

• No Required Minimum Distributions (RMDs): Unlike traditional IRAs, you’re not required to withdraw money starting at age 73.

1. Flexibility: You can withdraw your contributions any time without penalties, providing extra financial flexibility.

 

Backdoor Roth IRA

If you’re above the income limits, consider a Backdoor Roth IRA: contribute to a Traditional IRA first, then convert it to a Roth IRA (consult a tax advisor as we cannot give tax advice).

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