It’s a good time to start working on your 2024 retirement contribution goals. The Internal Revenue Service just announced contribution limits for retirement accounts, including Roth IRAs.
The Roth IRA (individual retirement account) has been around for more than two decades and is becoming increasingly popular due to its attractive tax advantages. If you believe you meet the requirements to contribute to a Roth IRA, you should learn about the new limits and put together your game plan now.
Image source: Getty Images.
Higher Roth IRA limits for 2024
Each fall, the IRS releases inflation-adjusted retirement contribution amounts. In 2023, we saw the first increase in Roth IRA contribution limits since 2019. Now the limits will increase again in 2024.
You can contribute up to $7,000 to a Roth IRA for 2024. That’s an increase from $6,500 in 2023. However, if you’re 50 and older, the contribution cap increases to $8,000.
If you haven’t already contributed to your Roth IRA for 2023, there’s still time. At this point in the year, you’re in a good position to max out your 2023 Roth IRA while also planning for the new year. You have until April 15, 2024 to fund your 2023 Roth IRA.
Old | 2024 Roth IRA Contribution limits | 2023 Roth IRA Contribution limits |
|---|---|---|
Under 50 | $7,000 | $6,500 |
50 or more | $8,000 | $7,500 |
Data source: IRS.
Make sure you are qualified
Not everyone can contribute the maximum amount to a Roth IRA.
Let’s say you contribute money to a Roth IRA in the name of your 12-year-old son. In 2023, your child earned $8,000 working part-time. You can contribute the maximum amount ($6,500) to your child’s Roth IRA.
But let’s say your child’s income drops to $3,000 in 2024. In this case, your Roth IRA contribution to your child’s account would be limited to his or her taxable compensation for the year. No one is allowed to contribute more to a Roth IRA account than they earned during the year.
Even with six-figure amounts, caution is advised. Once your income exceeds the threshold, you are prohibited from making direct contributions to a Roth IRA in 2024.
For example, if your 2024 tax filing status is single, you cannot contribute the maximum amount to a Roth IRA if your income is over $146,000. However, you can continue to make reduced contributions until your income reaches $161,000. This window is called the exit area. As long as your income is under $146,000, you are eligible to make direct contributions to a Roth IRA.
Take a look at the Roth IRA exit ranges if you’re filing jointly in 2024 as a single person, head of household, or married.
Registration status | Income phase-out area 2024 | Income phase-out area 2023 |
|---|---|---|
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.
Top Roth IRA benefits you shouldn’t miss
Before contributing money to a Roth IRA, it is important that you check the requirements box. You will then want to weigh the pros and cons of making a deposit into the account. Here are some benefits to make your decision a little easier:
- Tax-free profits and dividends in retirement.
- No required minimum distributions.
- Ability to withdraw original contributions at any time without paying income tax or early withdrawal penalty.
If these benefits sound good to you, you may want to open or add more money to a Roth IRA in 2024. If you think your income will continue to grow, you’ll want to take advantage of your ability to easily contribute to your account now. The more you deposit, the more money you have to invest in assets of your choice. And if you’re hoping to build a six-figure Roth IRA, you need to exceed your contribution goals now.