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By starting now, you'll be in a good position to crush your Roth IRA goals this year.
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Contributing to a Roth IRA (individual retirement account) is a big deal, but maxing out your account can be the icing on the cake. Every penny you contribute to a Roth IRA gives you the opportunity to unlock more tax-free income during retirement. By starting early and maxing out your account every year, you could end up with a million-dollar Roth IRA without breaking a sweat.
If you've been having trouble maxing out your Roth IRA, here are some pointers to help you crush your goals in 2023.
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Roth IRAs are attractive because they give you the flexibility to invest in individual stocks and collect tax-free income during retirement. But there's a limit to how much you can contribute to the account every year.
For 2023, you can contribute up to $6,500 to a Roth IRA if you are 49 and under. If you are 50 and over, you qualify for a special catch-up contribution of $1,000, bringing your total Roth IRA contribution cap to $7,500. But if your earned income for the year is less than the IRS annual contribution cap, your contributions will be limited to the amount of earned income you had during the year.
Let's say you are 45 years old and earned $5,500 during the year. Although the IRS contribution cap is $6,500, you won't be able to contribute more than your earned income, which is $5,500.
By contributing as much as possible to your Roth IRA now, you can withdraw all your earnings tax-free after you reach 59 1/2 and have met the requirements of the five-year rule. And maxing out your account can increase your chances of building a million-dollar Roth IRA to fund your future self.
The window for 2023 Roth IRA contributions is from January 1, 2023 to April 15, 2024 (or tax filing deadline). If you don't want to wait until the last minute to achieve your Roth IRA goals, here are some contribution options you can consider.
After you've figured out your contribution plan, you want to automate the process to make it easy to achieve your goals. Set up recurring deposits from a checking account to your Roth IRA weekly, bi-weekly, or monthly. You'll end up with a fully funded Roth IRA for 2023 without breaking a sweat.
Before you hit the ground running with your Roth IRA game plan, it's important to assess your finances to minimize disruptions on your journey. Here are a few items you want to consider doing:
Your financial assessment may reveal that you need to increase your income, decrease your expenses, or tackle both simultaneously. If you're still building your emergency fund, maybe you want to start off with small contribution amounts every week, say $25, until you can beef up your contributions.
If you plan to boost your income in the future, it's a good idea to start maxing out your Roth IRA now. You can sock away small amounts to the account now and raise your contribution every month until you reach your goal. You can also reach your target amount early by contributing more money to the account at the beginning of the year.
Maxing out your Roth IRA now will give your future self a chance to live out your most desired retirement dreams.