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Originally Posted On: https://www.empower.com/the-currency/work/roth-ira-rules

 

Saving for retirement can be a challenge.

Fortunately, there are numerous tax-advantaged accounts to help you reach your financial and retirement goals.

In this article, we’ll focus on an increasingly popular retirement account: the Roth IRA. Roth IRAs can be a great option for your retirement savings, but there are some rules to keep in mind if you are considering taking advantage of this type of account.

How is a Roth IRA distinct?

A Roth IRA is funded with after tax dollars, whereas with a Traditional IRA, contributions may be tax-deductible in the year that they are made.  Withdrawals of investment earnings from your Roth IRA during retirement are tax-free if certain conditions are met.  Unlike a Traditional IRA, withdrawals of contributions can be made at any time without a penalty.

Similar to other retirement plans, there are specific rules regarding Roth IRAs. In this article, we’ll cover eligibility requirements, income limits, and other rules, such as the 2024 Roth IRA contribution limits.

What is the Roth IRA contribution limit for 2024?

For the 2024 tax year, the maximum amount1 you can contribute to a Roth IRA is $7,000, or $8,000 if you are 50 or older. In 2023, the contribution limit was $6,5000, or $7,500 for those 50 or older.

Your individual contribution limit is determined based on your filing status and your Modified Adjusted Gross Income (MAGI). Based on these factors, you may be able to contribute the maximum amount, a reduced amount, or nothing at all.

Wondering how to figure out your MAGI? Your MAGI is calculated by taking the Adjusted Gross Income (AGI) from your tax return and adding back in certain deductions such as student loan interest, self-employed taxes, home interest payments and higher education expenses.

2024 Roth IRA income limits

Now you know your MAGI, here’s a rundown of the Roth IRA income limits for 2024, based on your filing status:

If your filing status is…

And your modified AGI is…

Then you can contribute…

married filing jointly or qualifying widow(er)

Less than $230,000

up to $7,000 ($8,500 if you’re age 50 or older)

married filing jointly or qualifying widow(er)

$230,000 to $240,000

a reduced amount

married filing jointly or qualifying widow(er)

$240,000 or more

zero (not eligible)

married filing separately and you lived with your spouse at any time during the year

Less than $10,000

a reduced amount

married filing separately and you lived with your spouse at any time during the year

$10,000 or more

zero (not eligible)

single, head of household, or married filing separately and you did not live with your spouse at any time during the year

Less than $138,000

up to the $6,500 ($7,500 if you’re age 50 or older)

single, head of household, or married filing separately and you did not live with your spouse at any time during the year

$138,000 to $153,000

a reduced amount

single, head of household, or married filing separately and you did not live with your spouse at any time during the year

$153,000 or more

Zero (not eligible)

 

Read more: Roth vs. traditional IRA: Which should I choose?

2023 Roth IRA income limits

Contributions to Roth IRAs can be made until the federal tax filing day of the following year. You can still contribute to your Roth IRA for 2023 until April 15, 2024. Here are the 2023 Roth IRA contribution limits based on tax-filing status.

If your filing status is…

And your modified AGI is…

Then you can contribute…

married filing jointly or qualifying widow(er)

Less than $218,000

up to $6,500 ($7,500 if you’re age 50 or older)

married filing jointly or qualifying widow(er)

$218,000 to $228,000

a reduced amount

married filing jointly or qualifying widow(er)

$228,000 or more

zero

married filing separately and you lived with your spouse at any time during the year

Less than $10,000

a reduced amount

married filing separately and you lived with your spouse at any time during the year

$10,000 or more

zero

single, head of household, or married filing separately and you did not live with your spouse at any time during the year

Less than $138,000

up to the $6,500 ($7,500 if you’re age 50 or older)

single, head of household, or married filing separately and you did not live with your spouse at any time during the year

$138,000 to $153,000

a reduced amount

single, head of household, or married filing separately and you did not live with your spouse at any time during the year

$153,000 or more

zero

Roth IRA eligibility rules

Many of the rules for Roth IRAs have to do with who is eligible to contribute to one.

One of the main eligibility requirements is that you must have earned income. Earned income can come in several forms, including commissions, tips, bonuses, taxable fringe benefits from an employer who pays you, or via income from your own business. Additional types of income that can help fund your Roth IRA are combat pay, disability benefits, or taxed alimonies.

It’s important to note that certain income types will not qualify as earned income, and therefore you can’t use them to contribute to a Roth IRA. For example, non-taxable alimony, unemployment benefits, social security benefits, child support, and any type of investment income from securities, rental properties or other assets are considered “unearned income.”

Roth IRA age requirements

Roth IRA contributions don’t have an age requirement, so even young students and teenagers can open a Roth IRA (subject to state law age of majority requirements) and contribute their earnings from a summer job into their account, as long as their earned income is within the set limits for Roth IRAs.

2024 Roth IRA contribution rules

In addition to restrictions around income, there are other rules around Roth IRA contributions to be aware of.

Traditional & Roth IRAs

It’s possible to have both a Traditional IRA and a Roth IRA, but the yearly contribution limit applies collectively to both types of IRAs.

For example, if Mary is younger than 50 years old, files her taxes as single and reports a MAGI of $120,000, she can deposit up to $7,000 in 2024 and split the amount in any manner between her Traditional and Roth IRA. She just can’t exceed $7,000 in total contributions. It should also be noted that in this scenario, Mary may not want to contribute to a Traditional IRA due to her high-income level and deductibility rules.

Contribution deadline

As mentioned, contributions to Roth IRAs can be made until the federal tax filing day of the following year. Using our above example for Mary, she will be able to contribute to her Roth IRA for 2024 until the federal tax deadline of April 15, 2025.

Roth conversions

What if you have an existing Traditional IRA and you would like to move those funds into a Roth IRA? This can be done as a Roth conversion. You may also be able to move your 401(k) account to a Roth IRA if you are eligible to receive a distribution of your 401(k) plan.

It’s important to note that conversions from other retirement accounts have no impact on your 2024 contribution limit but may increase your total MAGI and therefore trigger a phaseout of your Roth IRA contribution amount.

Those who are not eligible for Roth contributions due to income limitations are generally still eligible to convert dollars from traditional retirement plans. Talk with an accountant, your financial advisor, or another financial professional to see if this makes sense for you.

Read more: Roth IRA investment returns

Tax benefits of Roth IRA contributions

One of the main benefits of contributing to Roth IRAs is that you will not be taxed when you withdraw your investment earnings in retirement. And, since Roth IRAs are funded with after-tax dollars, you can withdraw your contributions at any time without a penalty. So, if you’re looking for a current tax deduction, a Roth IRA is probably not the ideal investment tool for you.

Conversely, if you have an income that is low to moderate, you may be eligible for a tax credit through the Retirement Savings Contributions Credit. This applies to those who are:

• 18 years old or older
• Not claimed as a dependent on another person’s tax return
• Not a full-time student

The Saver’s Credit is for 10%, 20%, or 50% on the first $2,000 ($4,000 if married filing jointly), based on your AGI.

The income levels for the Saver’s Credit are revised every year to account for inflation.

Here are the income limits for the Saver’s Credit for the 2024 tax year.2

Credit rate

Married filing jointly

Head of household

All other filers*

50% of your contribution

AGI not more than $46,000

AGI not more than $34,500

AGI not more than $23,000

20% of your contribution

$46,001- $50,000

$34,501 – $37,500

$23,01 – $25,000

10% of your contribution

$50,001 – $76,500

$37,501 – $57,375

$25,001 – $38,250

0% of your contribution

more than $76,500

more than $57,375

more than $38,250

 

*Single, married filing separately, or qualifying widow(er)

And here are the income limits for the Saver’s Credit for the 2023 tax year.

Credit rate

Married filing jointly

Head of household

All other filers*

50% of your contribution

AGI not more than $43,500

AGI not more than $32,625

AGI not more than $21,750

20% of your contribution

$43,501- $47,500

$32,626 – $35,625

$21,751 – $23,750

10% of your contribution

$47,501 – $73,000

$35,626 – $54,750

$23,751 – $36,500

0% of your contribution

more than $73,000

more than $54,750

more than $36,500

 

*Single, married filing separately, or qualifying widow(er)

Roth IRA withdrawal rules

One of the benefits of a Roth IRA is that withdrawals of investment earnings are tax-free when you take money from the account in retirement. With Roth IRAs, you can leave your money untouched if you want to keep the funds in the account, as there are no required minimum distributions (RMDs) until it potentially becomes inherited.

Keep in mind there are several rules to follow to help you avoid having to pay taxes or penalties for withdrawing your earnings from a Roth IRA:

• If you are 59½ years or older, have held the Roth IRA for at least five years, and wish to withdraw from your account, you will not be subject to any taxes or penalties (if you’ve converted dollars into the Roth IRA, this may get more complicated).
• If you’re younger than 59½ and withdraw for events such as higher education expenses, a first-time home purchase, medical expenses or unexpected family events, you may be able to avoid the early withdrawal penalty (but may have to pay taxes on any growth). It’s advisable to speak with a tax professional beforehand to confirm your qualifications.
• For those aged 59½ or older but who have had their Roth IRA for less than five years, their withdrawn earnings are subject to taxes, but not the penalty.

Is a Roth IRA right for you?

Contributions to Roth IRAs aren’t tax-deductible, but qualified withdrawals of investment earnings in retirement are tax-free. In sum, it’s a matter of paying taxes now (Roth) or later (traditional).

Roth IRAs have no required minimum distributions (RMDs) until inherited and can be left as an inheritance or future nest egg to tap into.

Because of these features, Roth accounts are generally good investment tools for people who believe their tax bracket in retirement will be higher than it is now. If you think you’ll be taxed higher in retirement, then it may be better to pay the taxes now.