Roth IRA Contribution Limits for 2023 and 2024: How to Maximize Tax-Free Growth
Retiring is a goal many people dream of. In order to retire, people need to find a way to survive financially.
Most people don’t have access to pensions anymore. While Social Security may provide some income, it’s a very minimal amount for most people’s needs.
Saving for retirement on your own is essential if you want to live a comfortable lifestyle. One way you can start saving for retirement is by contributing to a Roth IRA.
But there are Roth IRA contribution limits and other rules you must know.
Here’s how contribution limits for Roth IRAs work in 2023 and 2024.
Roth IRA 2023 and 2024 Contribution Limits
To have eligibility to contribute to an IRA, you must have earned income, which the IRS defines as any taxable income or wages received worked for someone else, yourself, a business, or any farm you own.
Assuming you have enough earned income, the IRS sets maximum contribution limits each year.
- For 2023, the Roth IRA’s contribution limit is $6,500. For people age 50 or older, the contribution limit is $7,500.
- For 2024, the Roth IRA’s contribution limit is $7,000. For people age 50 or older, the contribution limit is $8,000.
If your earned income is less than the above limits, you cannot contribute more than your earned income. For example, if you only earned $3,000 this year, you can only contribute $3,000--even if the IRS limit is higher.
High Income Could Reduce 2023 and 2024 Contribution Limits
While the IRS sets maximum contribution limits, your personal contribution limit to a Roth IRA may be lower.
The IRS Roth IRA contribution limits are calculated based on your modified adjusted gross income (MAGI) combined with your tax filing status.
2023 and 2024 Roth IRA Contribution Limits (based on income)
| Filing status | Modified adjusted gross income in 2023 | Contribution limit for 2023 | Modified adjusted gross income in 2024 | Contribution limit for 2024 |
|---|---|---|---|---|
| Single individuals | Less than $138,000 | $6,500 ($7,500 if age 50 or over) | Less than $146,000 | $7,000 ($8,000 if age 50 or over) |
| $138,000 - $152,999 | Partial contribution | $146,000 - $160,999 | Partial contribution | |
| $153,000 or more | No contributions | $161,000 or more | No contributions | |
| Married filing jointly | Less than $218,000 | $6,500 ($7,500 if age 50 or over) | Less than $230,000 | $7,000 ($8,000 if age 50 or over) |
| $218,000 - $227,999 | Partial contribution | $230,000 - $239,999 | Partial contribution | |
| $228,000 or more | No contributions | $240,000 or more | No contributions | |
| Married filing separately | Less than $10,000 | Partial contribution | Less than $10,000 | Partial contribution |
| More than $10,000 | No contributions | More than $10,000 | No contributions |
What is the Roth IRA Contribution Deadline?
IRA contribution deadlines are the same as the filing deadline of your tax return.
For tax year 2023, the Roth IRA contribution deadline is Monday, April 15, 2023.
For tax year 2024, the Roth IRA contribution deadline is Tuesday, April 15, 2024.
So, you can actually contribute for a particular tax year in the early months of the following year--a bit of extra time to put money into retirement if you didn't get a chance to do so.
How a Roth IRA Works
A Roth IRA is a tax-advantaged retirement account.
These accounts allow you to contribute money to them after you pay taxes on the money.
That means you don’t get a tax deduction for your contributions to a Roth IRA.
Instead, the money in the account grows tax-free.
When you withdraw it in retirement, it’s tax-free if you meet the requirements.
The main requirements are:
- you’re age 59 and ½ or older and
- have had a Roth IRA open for at least five years.
If you withdraw money from the account before this age, you may owe an early withdrawal penalty and taxes on some or all of your withdrawals.
These tax benefits can pay off very well for those that think to contribute early and often.
As you can imagine, the government doesn’t like giving away their tax revenue, though. Due to this fact, there are Roth IRA contribution limits that cap how much you can contribute to these accounts each year.
Can You Contribute to a Roth and Traditional IRA at the Same Time?
As long as you qualify to contribute to a Roth IRA and traditional IRA, you may contribute to both types in the same year.
The key is making sure you don’t exceed the contribution limits.
The contribution limits spread across both Roth and traditional IRAs.
If your income or other circumstances reduces your contribution limits, you must adhere to those reduced limits.
This means you couldn’t contribute $6,500 to a Roth IRA and another $6,500 to a traditional IRA.
You could, however, contribute $4,000 to a Roth IRA and $2,500 to a traditional IRA, assuming you qualify.
What Happens If You Contribute Too Much?
It is possible to contribute too much to a Roth IRA.
This may happen if you have Roth IRAs at multiple brokerages.
It can also happen if your income unexpectedly exceeds the limits for your filing status.
In these cases, you must act quickly to minimize the financial impacts you face.
You may potentially owe a 6% excise tax on the excess amount in your Roth IRA until the error is fixed.
You have several options for how to fix this error based on when you discover it.
That said, it’s often best to consult a tax professional to make sure you fully correct any error.
Contact your brokerage firm or a professional as soon as possible to discuss your options.
Options If You Can’t Contribute to a Roth IRA
If you can’t contribute to a Roth IRA directly, you likely have other options.
People who are still interested in a Roth IRA may want to consult a tax expert.
Traditional IRA
A Roth IRA isn’t your only tax-advantaged retirement account option, though.
People who exceed Roth IRA income limits but do not have a workplace retirement plan likely qualify to contribute to a traditional deductible IRA.
Check all of the rules to make sure you can deduct your contributions before doing so, though.
Employer-sponsored retirement plans
Another option is a workplace retirement account.
These accounts can take many forms depending on your workplace.
Potential options include a 401(k), 403(b), 457, SIMPLE IRA, SIMPLE 401(k) and several more small business plan types.
You usually contribute to these accounts through your paycheck.
Some offer only traditional account types.
These make contributions on a pre-tax basis which means you don’t pay taxes on that money today.
You do have to pay ordinary income taxes on withdrawals in retirement.
Other accounts may offer Roth and traditional account types.
Like with IRAs, you have contribution limits to these accounts.
Check with your workplace to learn more about what you have available and what the annual limits are.
Taxable brokerage account
The last major option you have to invest in isn’t a retirement account at all.
It’s a taxable brokerage account.
These accounts have no contribution limits or income limits.
They also don’t have any significant tax advantages like retirement accounts do.
You must pay taxes on dividends and other income as you receive it.
Similarly, you must pay taxes on gains as you sell your investments.
These accounts may allow for lower qualified dividends and long-term capital gains tax rates, though.
The good news is you can withdraw money whenever you want.
You only have to make sure the brokerage and your investments allow you to do so.
There is no early withdrawal penalty for taking funds out before you reach age 59 and ½.
This makes taxable brokerage accounts ideal for short to mid-term non-retirement goals.
You can open a taxable brokerage account wherever you want as long as you qualify for that brokerage’s requirements.
Consult a Financial Pro
Experts can help you answer any questions you may have about Roth IRA contribution limits.
They can look at your specific situation and help you determine how much you can contribute in a given year.
If you need help figuring out your limit for contribution to a Roth IRA, a tax advisor or preparer should be able to help.
If you want a more detailed analysis of your investment plan and help optimizing your finances, you likely want to consult a fee-only fiduciary financial planner.
These advisors don’t take commissions. You do have to pay them directly.
The good news is this means there are no conflicts of interest over how they get paid.
They are also bound to give you advice in your best interests.
The cost of sound retirement planning advice may be well worth the peace of mind you get from it.
