Last month, the IRS announced the new Roth IRA (individual retirement account) contribution limits for 2023. For the first time in several years, the contribution cap is moving beyond $6,000 for people under 50. This is great news for people seeking to tuck away more money in a retirement account and receive tax-free income during retirement.
Below, we've summarized the new contribution and income limits so you can plan ahead for 2023. Before you add money to a Roth IRA, make sure you meet the requirements.
Roth IRA contribution limits are moving up in 2023
You can save more money in a Roth IRA thanks to the new inflation-adjusted contribution limits for 2023. For the first time since 2019, the annual Roth IRA contribution limit is rising. Savers under 50 can contribute up to $6,500 to a Roth IRA in 2023. That's an increase of $500 over the 2022 contribution cap. If you end up earning less than the annual contribution limit, your contribution amount is capped at your earned income.
Since a Roth IRA doesn't come with age restrictions, kids can contribute to a Roth IRA if they have earned income. Let's say your child has an offer for a summer job in 2023. They can contribute money to the account when they start receiving a paycheck. You can also contribute money to a Roth IRA on your child's behalf as long as the contribution amount doesn't exceed your child's earned income.
Let's say your child ends up making $10,000 during the summer. You can stash away up to $6,500 into your child's Roth IRA, up from $6,000 in 2022. On the flip side, if your child only earned $4,000, the maximum amount of money that can go into the Roth IRA in 2023 is capped at $4,000. Starting early will give your child an advantage. Time will give them a better chance of building a million-dollar nest egg without playing the lottery.
If you're 50 and over, it's not too late to contribute to a Roth IRA. In fact, there's a contribution catch-up bonus with your name on it. You can contribute an additional $1,000 to your Roth IRA, bringing your contribution cap up to $7,500. The catch-up contribution was not adjusted for inflation.
Check your income to see if you qualify
In addition to the boost in contribution limits for Roth IRAs, the IRS also announced an increase in income ranges. That means more people will be able to contribute to a Roth IRA in 2023. If your income banned you from the Roth IRA club in 2022, you'll have a greater chance to tuck away money in 2023, thanks to the new limits.
Let's say your tax filing status is married. The income cap for a full Roth IRA contribution in 2023 is $218,000, up from $204,000 in 2022. After your income climbs above the income limit, you'll enter the phaseout range. This is when your maximum contribution limit will be reduced. You aren't allowed to contribute any money to a Roth IRA when your income surpasses $228,000, up from $214,000 in 2022.
Focus on your modified adjusted gross income (MAGI) to determine if you qualify to make contributions to a Roth IRA. Take a look at the income limits for 2023 below.
2023 TAX FILING STATUS
INCOME LIMIT FOR A FULL ROTH IRA CONTRIBUTION
ROTH CONTRIBUTION PHASES OUT ENTIRELY FOR INCOME ABOVE
Single and head of household
Married filing jointly
Make the most of your Roth IRA contributions in 2023
The new Roth IRA contribution limits are better than ever. You can contribute an additional $500 to your account in 2023 if you are under 50. But if you're 50 and over, you can enjoy a contribution cap of $7,500.
Although the contribution limits are appealing, it's important to check the box on the requirements before you add money to a Roth IRA. Make sure you have earned income and that your income doesn't exceed the limits. After you check the box on all the requirements, you'll be one step closer to creating more tax-free income for retirement.