Roth IRA retirement plans have become very popular in recent years because they have significant tax advantages. There is a difference between this type of plans and other retirement accounts, such as the Traditional IRA, which lies in how the taxes are levied.
In a Roth IRA, savers make after-tax money contributions, which means they have already paid taxes on their funds before depositing them into the account, and what happens subsequently with those funds is no longer taxable. That includes the profits they have generated, either from investments or interests: all the money there is beyond the reach of the IRS.
Tax-Free Roth IRA Qualified Withdrawals
It is good to note that Roth IRA retirement plans also offer so-called qualified withdrawals, that is, those withdrawals of money after turning 59 and having kept the account for at least 5 years. These withdrawals are also tax-free. In addition, unlike other retirement plans, it is not required to take mandatory minimum distributions from a certain age, which allows investors to keep their funds growing in a tax-advantageous way for longer.
One aspect to consider in Roth IRA plans is that they have a maximum amount of money that can be contributed each year, which is established each period by the Internal Revenue Service (IRS). But why do these limits exist? The answer is very simple: It aims to prevent people with too high incomes from using Roth IRA plans as a way to put their money into tax-free investments.
Roth IRA Contribution Limits for the Year 2024
The maximum contributions that can be made to this retirement plan have several guidelines. To begin with, the maximum amount you can contribute is $7000 per year, if you are under 50 years of age, an increase of $500 compared to the $6500 that were allowed in 2023.
After age 50, you can add an additional $1,000 per year in “catch-up” contributions, bringing the contribution to a total of $8,000. These types of recovery contributions did not increase compared to 2023.
Anyway, those are just the maximum limits because the actual amount you will be able to contribute depends on your income. To be eligible to contribute the maximum allowable amount in 2024, your modified adjusted gross income (MAGI) must be less than $146,000 (up from $138,000 last year) if you are single. Contributions begin to gradually decrease above those amounts, and at a certain point you won’t be allowed to deposit into a Roth IRA once your income reaches $161,000.
Learn More: You May Be Saving More for Your 401(k) and Don’t Even Know — Where Do the Hidden Money Come From?
A couple filing jointly can earn between $230,000 and $240,000 to be eligible. Contributions begin to gradually decrease above those amounts, and at a certain point you won’t be allowed to deposit into a Roth IRA once the couple’s joint income exceeds $240,000.
If you are looking for another type of retirement plan, we also have articles that talk about the 401(k), a type of plan that also receives matching contributions from employers. Get in here and learn more about them and their advantages.
