Roth IRAs allow income-earners to save after-tax dollars for retirement and make qualified withdrawals tax-free. Understanding how to properly contribute affects taxes.
Contributions
The 2024 IRA contribution limit is the lesser of one’s total earned income or $7,000, or $8,000 “catch-up” for individuals aged 50 and older. The limit applies across all traditional and Roth IRAs, including rollovers, rather than to each account separately.
However, the Roth contribution limit decreases as modified adjusted gross income increases. The limit above only applies to single filers earning under $146,000 or $230,000 if married filing jointly. Those earning at least $161,000 (or $240,000 if married filing jointly) may not contribute to a Roth at all. If your MAGI is somewhere in the middle, your 2024 Roth contribution limit can be easily calculated on the IRS website.
Spousal Roth IRA
If you are married and file taxes jointly, and your spouse does not earn income, a spousal Roth IRA might be a wise decision. Spousal IRAs allow an income-earning spouse to contribute to the other’s retirement account. If one spouse reaches the contribution limit, opening a spousal IRA can help couples maximize their retirement savings.
Excessive Contributions
Exceeding the limits triggers a 6% tax each year the excess remains in the account, up to 6% of your combined IRA values as of the tax year end. To avoid the 6% tax, the IRA owner must withdraw the contributions and income earned by the individual tax return due date including extensions.
Alternatively, excess amounts may be applied to a later year, for a possible penalty or additional tax, if that year’s limit is not yet met. After the tax return due date, contributions cannot be backtracked to apply to previous years.
Building a Retirement Portfolio
First State’s financial advisors tailor each portfolio to each client’s needs and goals to help ensure a comfortable retirement. For a free consultation with Tulsa financial advisors, contact us at 918-492-1361.
This overview is for informational purposes only and is not a recommendation. It should not be the sole deciding factor in making an investment. Investing is a risk and, as with all risks, a positive return is not guaranteed. Past performance does not indicate future results.