Understanding how much to contribute to a Roth IRA is crucial for maximizing your retirement savings while taking advantage of its unique tax benefits. This guide outlines the Roth IRA contribution limits, eligibility requirements, and other factors to consider when planning your contributions.
For detailed contribution limits regarding other retirement plans, please refer to Retirement Topics – Contribution Limits.
Roth IRA Contribution Limits
The maximum amount you can contribute to a Roth IRA each year is determined by the IRS and can change annually. It’s important to stay updated with these limits to avoid penalties. In addition to the general IRA contribution limit, your Roth IRA contribution may be limited based on your filing status and income.
For 2024, the total contributions you make each year to all of your traditional IRAs and Roth IRAs can’t be more than:
- $7,000 ($8,000 if you’re age 50 or older), or
- If less, your taxable compensation for the year
For 2023, the total contributions you make each year to all of your traditional IRAs and Roth IRAs can’t be more than:
- $6,500 ($7,500 if you’re age 50 or older), or
- If less, your taxable compensation for the year
For 2022, 2021, 2020 and 2019, the total contributions you make each year to all of your traditional IRAs and Roth IRAs can’t be more than:
- $6,000 ($7,000 if you’re age 50 or older), or
- If less, your taxable compensation for the year
The IRA contribution limit does not apply to:
Income Limits and Roth IRA Eligibility
While anyone can contribute to a traditional IRA (subject to certain deduction limitations), Roth IRAs have income limitations. Your ability to contribute to a Roth IRA depends on your modified adjusted gross income (MAGI). The IRS sets specific income thresholds each year that determine whether you can contribute the maximum amount, a reduced amount, or not at all.
Consult the IRS guidelines to determine the specific income limits for the tax year you are contributing.
Roth IRA Contributions After Age 70½
For 2020 and later, there is no age limit on making regular contributions to traditional or Roth IRAs.
For 2019, if you’re 70 ½ or older, you can’t make a regular contribution to a traditional IRA. However, you can still contribute to a Roth IRA and make rollover contributions to a Roth or traditional IRA regardless of your age.
Spousal Roth IRAs
If you file a joint return, you may be able to contribute to a Roth IRA even if you didn’t have taxable compensation as long as your spouse did. Each spouse can make a contribution up to the current limit; however, the total of your combined contributions can’t be more than the taxable compensation reported on your joint return. See the Kay Bailey Hutchison Spousal IRA Limit in Publication 590-A.
If neither spouse participated in a retirement plan at work, all of your contributions will be deductible.
Contributing to a Roth IRA While Participating in a Retirement Plan at Work
You can contribute to a traditional or Roth IRA even if you participate in another retirement plan through your employer or business. However, you may not be able to deduct all of your traditional IRA contributions if you or your spouse participates in another retirement plan at work. Roth IRA contributions might be limited if your income exceeds a certain level.
Examples
- Danny, an unmarried college student earned $3,500 in 2020. Danny can contribute $3,500, the amount of his compensation, to his IRA for 2020. Danny’s grandmother can make the contribution on his behalf.
- John, age 42, has a traditional IRA and a Roth IRA. He can contribute a total of $6,000 to either one or both for 2020.
- Sarah, age 50, is married with no taxable compensation for 2020. She and her spouse, age 48, reported taxable compensation of $60,000 on their 2020 joint return. Sarah may contribute $7,000 to her IRA for 2020 ($6,000 plus an additional $1,000 contribution for age 50 and over). Her spouse may also contribute $6,000 to an IRA for 2020.
Tax Implications of Excess Roth IRA Contributions
Contributing more than the allowed limit to your Roth IRA can lead to tax penalties. An excess IRA contribution occurs if you:
- Contribute more than the contribution limit.
- Make a regular IRA contribution for 2019, or earlier, to a traditional IRA at age 70½ or older.
- Make an improper rollover contribution to an IRA.
Excess contributions are taxed at 6% per year for each year the excess amounts remain in the IRA. The tax can’t be more than 6% of the combined value of all your IRAs as of the end of the tax year.
To avoid the 6% tax on excess contributions, you must withdraw:
- the excess contributions from your IRA by the due date of your individual income tax return (including extensions); and
- any income earned on the excess contribution.
See Publication 590-A for certain conditions that may allow you to avoid including withdrawals of excess contributions in your gross income.
Maximizing Your Roth IRA Contributions
Contributing the maximum amount to your Roth IRA each year, if possible, is an excellent way to build a substantial retirement nest egg. By understanding the contribution limits, income restrictions, and tax implications, you can make informed decisions and optimize your retirement savings strategy. It’s beneficial to consult with a financial advisor to create a personalized plan that aligns with your financial goals and circumstances.
