ROTH IRA Contribution Limits

Roth IRA Contribution Limits are determined by your earned income. The contribution limit is lower for individuals with higher incomes. To qualify for a Roth IRA, your modified adjusted gross income must be less than or equal to $133,000 for single filers or $73,000 for married couples filing jointly. If your MAGI is above this amount, you may be able to still contribute by using a “backdoor” conversion process. The incentive behind the Roth IRA is to build savings for retirement rather than obtain a current tax deduction. This is because the funds are withdrawn in retirement tax-free. However, to reap the benefits of a Roth IRA, you must wait five years to withdraw your funds without penalty.

How Much Can I Contribute to My ROTH IRA in 2023?

Individuals can contribute up to $6,500 per year (or $7,500 if they are 50 or older) to Roth and traditional IRAs. These contribution limits are adjusted annually for inflation. However, if your income is too high, you may be subject to penalties. To determine your annual contribution limit, you must take into account your MAGI and tax filing status.

You must also consider whether or not you are covered by a workplace retirement plan. If you are, you cannot deduct your contributions from your taxes. However, if you are self-employed or own a small business, you might be able to deduct the full amount of your Roth IRA contributions.

If you make too many contributions or take withdrawals before age 59 1/2, you may face a 6% penalty tax. To avoid these penalties, you should make your contributions and withdraw them in a timely manner. You can find an IRA calculator on the IRS website that will help you determine how much you can save each year. It will also let you know if your income is too high for you to contribute to an IRA. This is because the calculator adds back certain deductions to your adjusted gross income. Those deductions include things like student loan interest, mortgage interest, and health care premiums.

Can I Contribute to ROTH IRA If My Income is Too High?

Although income limits prevent some high-income earners from contributing directly to a Roth IRA, they don’t necessarily preclude people from saving in these accounts. In fact, there are several ways to get around these limitations. One way is to contribute to a traditional IRA then convert that account into a Roth IRA. This is called a “backdoor” Roth IRA and can be an effective strategy for getting around contribution limits.

Another way to get around Roth IRA contribution limits is to make contributions through your employer’s workplace retirement plan. This option can be helpful for those who have already maxed out their traditional IRA contributions and are looking to save more in tax-advantaged accounts. However, be aware that the amount you can contribute to your workplace retirement plan is also limited by income.

Understanding the contribution limits of Roth IRAs and their associated phase-out rules is important. These limits can have significant consequences if you exceed them. The good news is that you can avoid penalties if you withdraw or recharacterize any excess contributions by the due date of your tax return (including extensions). However, it’s best to work with a financial advisor to ensure that you don’t accidentally overcontribute and incur penalties. If you need help determining your maximum contribution limits, complete our questionnaire to get matched with a fiduciary financial advisor from our network.