A Roth IRA is one of the best retirement vehicles available. In fact, it’s so good that the IRS caps the contribution at $7,000 or $8,000 if you’re aged 50+.
A Roth IRA is a type of individual retirement account (IRA) in which you pay taxes on money going into your account. Once you reach age 59½ and the Roth IRA has been open for at least five years, all future withdrawals of earnings are free from tax and penalty. Yep, that’s pretty awesome!
As with all investing, time in the market is key, so start maxing out your IRA as soon as possible. Remember, the long-term benefits of a Roth IRA can be significant, giving you a reason to be optimistic about your retirement.
To contribute the full amount, it is:
Where to open your Roth IRA? Vanguard, Fidelity, and Charles Schwab are all good options. I like Vanguard and Fidelity.
The Roth IRA contribution limit for 2024 and 2025 is $7,000 for those under 50 and $8,000 for those 50 and older. The $8,000 limit includes a catch-up contribution of $1,000 for those 50 and older.
The amount you can contribute to a Roth IRA is also based on your modified adjusted gross income (MAGI):
- Single filers: Your MAGI must be under $146,000 to contribute the full $7,000. However, if your income is between $146,000 and $161,000, your contribution limit will be reduced, a process known as ‘phase out’. Contributions begin to phase out above this amount.
- Married and filing jointly: Your MAGI must be under $230,000 to contribute the full $7,000. Contributions begin to phase out above this amount.
Once your income reaches $161,000 as a single filer or $240,000 as a married and filing jointly filer, you can’t contribute any more to a Roth IRA for the year.
What do you do if you make too much money to contribute to a Roth IRA? Check out my blog about creating a backdoor IRA, and don’t worry—it is legal.
Consult a tax advisor to determine the exact amount you can contribute based on your specific income situation.
Frequently Asked Questions:
Can I invest in an IRA for a spouse? IRA stands for Individual retirement account, so you and your spouse must open an IRA.
Can I invest in an IRA for my kids? Yes, but you need to be able to show that your kids have earned income, so some form of W-2 or 1099.
If you have room in your budget to automatically transfer the set amount every month, that’s ideal. However, if you need to get creative on ways to fund it, here are some ideas:
-Use your tax refund from the IRS.
-Any bonus or commission income.
-Gift money from birthdays or holidays.
-Side hustles.
I hope this helps!!
