If you're on a mission to beef up your retirement savings this year, you should check out the Roth IRA (individual retirement account). This account comes with more flexibility than you'll get with a 401(k) and you'll be able to set yourself up for tax-free income during retirement.
Since you won't be able to make direct contributions to a Roth IRA when your income exceeds the limits, you want to jump on this opportunity as soon as possible if it piques your interest. We've jotted down four moves you want to make this year to help you maximize the power of a Roth IRA.
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1. Determine your Roth IRA goals
Setting Roth IRA goals can put you on the path toward a six-figure Roth IRA in less than 15 years. If you haven't started saving for retirement or need to beef up your savings, here are some questions to consider to motivate you to crush your Roth IRA goals this year:
- What type of lifestyle do you want to live during retirement?
- Do you want to earn tax-free income during retirement?
- Do you expect your income to rise above the annual Roth IRA limits?
If there's a good chance that you'll be in a higher tax bracket later, then contributing to a Roth IRA is a no-brainer in 2024. Knowing your goals and the type of lifestyle you want to live later can also motivate you to make better financial decisions today so you can have more money to stash away in a Roth IRA.
2. Contribute as much as possible
If you qualify to tuck away money in a Roth IRA in 2024, you'll be able to tap into the biggest contribution limits we've ever seen. The 2024 contribution limits are up by $500, so it will be a bit easier to grow your savings.
This year, retirement savers may put up to $7,000 in a Roth IRA (or $8,000 if you're 50 or older). But keep in mind that your maximum allowable contribution may be reduced or "phased out" if your modified adjusted gross income (MAGI) exceeds the limitation. For example, you'll only be allowed to contribute the maximum amount to a Roth IRA if your modified adjusted gross income is under $146,000 as a single or head of household filer for 2024.
3. Put your contributions on autopilot
If you put your contributions on autopilot this month, you'll be able to achieve your Roth IRA contribution goals without breaking a sweat.
Let's say you are 45 years old and want to maximize your contribution power in 2024. You can tuck away up to $7,000, which comes out to about $583 per month for 12 months. If you're just getting started now, you can still stretch your contributions over a 12-month period since you have until April 15, 2025, to contribute money to a 2024 Roth IRA.
After you determine how much you want to contribute, then it's time to automate the process. Set up recurring contributions from a checking account to a Roth IRA every month or week to make sure you make progress toward your goals. It's easy to skip Roth IRA contributions if you have to manually put the money in your account every month.
But before you get started on your 2024 contributions, you still have time to make progress toward 2023 contributions if you qualify. You can contribute up to $6,500 if you are under 50 ($7,500 if you are older) to a 2023 Roth IRA. If you're able to squeeze in the maximum contribution for 2023 and 2024, you'll be able to boost your Roth IRA balance by five figures within 12 months.
4. Invest your contributions
If you want to give your Roth IRA a chance to grow in a decent amount of time, you have to invest the money in your account. Unlike employer-sponsored retirement plans like a 401(k), you have the flexibility to invest in individual stocks and other assets in a Roth IRA. So, if you want to build a dividend income machine, a Roth IRA gives you the freedom to pick your favorite dividend assets and earn tax-free income during retirement. This extra income can supplement your social security income.
The Roth IRA can be a powerful retirement account if you know how to maximize your benefits. So if you qualify to make direct contributions to the account in 2024 and it makes sense for your financial situation, you'll want to hop on the opportunity soon. Getting more tax-free income from your Roth IRA during retirement is a benefit that can make your retirement more rewarding.
FAQs
The Roth IRA contribution limit for 2024 is $7,000 for those under 50, and an additional $1,000 catch up contribution for those 50 and older. Source: "401(k) limit increases to $23,000 for 2024, IRA limit rises to $7,000," Internal Revenue Service, November 1, 2023.
What are the Roth IRA changes for 2024? ›
The Roth IRA contribution limit for 2024 is $7,000 for those under 50, and an additional $1,000 catch up contribution for those 50 and older. Source: "401(k) limit increases to $23,000 for 2024, IRA limit rises to $7,000," Internal Revenue Service, November 1, 2023.
What is the IRA rule for 2024? ›
For 2024, the IRA contribution limit is $7,000 for those under 50. Those 50 and older can contribute an extra $1,000 for a total of $8,000. The contribution limit doesn't apply to transfers from other retirement accounts, such as those used to create a rollover IRA.
What is the income limit for Roth conversion 2024? ›
The Roth IRA income limit to make a full contribution in 2024 is less than $146,000 for single filers, and less than $230,000 for those filing jointly. If you're a single filer, you're eligible to contribute a portion of the full amount if your MAGI is $146,000 or more, but less than $161,000.
Are backdoor Roths allowed in 2024? ›
Another option, if your employer's plan offers it, is the mega backdoor Roth. Under this option you would make after-tax contributions into your employer's 401(k) plan. For 2024 the limit for these after-tax contributions is $46,000.
What is the best company for Roth IRA? ›
Best Roth IRA accounts (online brokers)
- Charles Schwab.
- Interactive Brokers.
- Fidelity Investments.
- Vanguard.
- JP Morgan Self-Directed Investing.
- Merrill Edge.
- E-Trade.
- Firstrade.
What is a backdoor Roth IRA? A backdoor Roth IRA is a conversion that allows high earners to open a Roth IRA despite IRS-imposed income limits. Basically, you put money you've already paid taxes on in a traditional IRA, then convert your contributed money into a Roth IRA, and you're done.
At what age does a Roth IRA not make sense? ›
Are You Too Old for a Roth IRA? There is no maximum age limit to contribute to a Roth IRA, so you can add funds after creating the account if you meet the qualifications. Roth IRAs can provide significant tax benefits to young people.
At what age can you no longer do a Roth conversion? ›
However, there are no limits on conversions. A taxpayer with a pre-tax IRA can convert any amount of funds in a year to a Roth IRA. Roth IRAs also are exempt from required minimum distributions (RMDs). These mandatory withdrawals from retirement accounts begin at age 72 and can create a tax burden on affluent retirees.
What is the downside of Roth conversion? ›
Since a Roth conversion increases taxable income in the conversion year, drawbacks can include a higher tax bracket, more taxes on Social Security benefits, higher Medicare premiums, and lower college financial aid.
Cons: All or part of a backdoor Roth IRA conversion could be a taxable event. You may have to pay federal, state, and local taxes on converted earnings and deductible contributions. Conversions could kick you into a higher tax bracket for the year.
Will backdoor Roth disappear? ›
While it doesn't look like they'll be eliminated in 2024, the future of the Backdoor Roth IRA remains a target of proposed legislation. Some legislative efforts have already been taken to limit Roth IRAs or to change tax brackets and RMDs in the future.
How to convert IRA to Roth without paying taxes? ›
The point of a Roth IRA is that it's already taxed money that grows tax-free. So, to convert your traditional IRA to a Roth IRA you'll have to pay ordinary income taxes on your traditional IRA contributions in the year of the conversion before they “count” as Roth IRA funds.
What is the catch-up contribution for 2024? ›
Individuals who are age 50 or over at the end of the calendar year can make annual catch-up contributions. Annual catch-up contributions up to $7,500 in 2023 and 2024 ($6,500 in 2021-2020; $6,000 in 2015 - 2019) may be permitted by these plans: 401(k) (other than a SIMPLE 401(k))
What is the Roth IRA limit for 2025? ›
Beginning in 2025, the annual total contribution limits to an IRA will be raised to $10,000 for taxpayers between the ages of 60 and 63. Exceptions for making early withdrawals without a penalty have been expanded.
What is the maximum simple IRA contribution for 2024? ›
2024 SIMPLE IRA contribution limits
For 2024, the annual contribution limit for SIMPLE IRAs is $16,000, up from $15,500 in 2023. Workers age 50 or older can make additional catch-up contributions of $3,500, for a total of $19,500.
Can each spouse contribute $6,000 to Roth IRA? ›
In the case of married individuals, both spouses' combined contributions can't exceed the total taxable income for the household. In most cases, you and your spouse can each contribute $7,000 to an IRA, for total contributions of $14,000.
