Individual retirement accounts (IRAs) are a common source of income among retired workers, and a recent survey from MassMutual suggests that IRAs are even more popular among current workers. In general, there are two main account types: traditional and Roth. Both have pros and cons, but Roth IRAs are particularly attractive because they allow for tax-free withdrawals without required minimum distributions.
That means Roth IRA accountholders are never forced to draw on the balance of their accounts, and any funds they withdraw are subject to neither income tax nor capital gains tax, provided certain conditions are satisfied. Namely, the account holder must be at least 59 1/2 years of age, and the account itself must be at least five years old.
Read on to see the updated Roth IRA contribution and income limits in 2024.
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The Roth IRA contribution limits will increase in 2024
In November, the Internal Revenue Service published updated IRA contribution limits for 2024. A comparison between the old limits and new limits is shown in the chart below:
|
Year |
Under Age 50 |
Age 50 and Older |
|---|---|---|
|
2023 |
$6,500 |
$7,500 |
|
2024 |
$7,000 |
$8,000 |
Data source: Internal Revenue Service.
The contribution limits shown in the chart above are cumulative maximums encompassing all traditional IRAs and Roth IRAs. In other words, the limits cannot be sidestepped by funding multiple accounts during the same year, even if money is split between Roth IRAs and traditional IRAs. For example, a 50-year-old worker who contributes $3,500 to a traditional IRA in 2024 could add no more than $4,500 to a Roth IRA during the year.
Individuals who exceed the contribution limit must withdraw the excess funds and any income earned on the excess funds before taxes are due. Failure to follow that rule will result in a penalty. Specifically, excessive contributions will be taxed at 6% per year for each year the money stays in the account.
In any given year, the IRA contribution deadline is the same as the tax return filing deadline. That means Roth IRA contributions for 2023 can be made until April 15, 2024. The gap between year-end and the contribution deadline is particularly useful for individuals that don't know if their annual earnings will fall below the income limit.
The Roth IRA income limits will increase in 2024
Contribution limits are enforced across traditional IRAs and Roth IRAs, but income limits only apply to Roth accounts. The chart below details the modified adjusted gross income (MAGI) limits for 2024 based on the filing status of the tax return. Note that contribution limits shown in parentheses are relevant to individuals aged 50 and older.
|
Filing Status |
Modified AGI |
Roth IRA Contribution Limit |
|---|---|---|
|
Single |
$146,000 or less |
Up to $7,000 ($8,000 if 50 or older) |
|
Single |
$146,000 to $160,999 |
Partial contribution |
|
Single |
$161,000 or more |
Not eligible |
|
Married Filing Jointly |
$230,000 or less |
Up to $7,000 (or $8,000 if 50 or older) |
|
Married Filing Jointly |
$230,000 to $239,999 |
Partial contribution |
|
Married Filing Jointly |
$240,000 or more |
Not eligible |
Data source: Internal Revenue Service. Note: The contribution limit shown within parentheses is relevant to individuals age 50 and older.
As shown above, single individuals enter the partial contribution range when MAGI reaches $146,000 in 2024, up from $138,000 in 2023. Similarly, married couples filing jointly enter the partial contribution range when MAGI reaches $230,000 in 2024, up from $218,000 in 2023. In that situation, the precise limit varies based on the exact MAGI amount.
Anyone in the phase-out range can calculate their contribution limit by following the steps below:
- Start with your MAGI.
- Single filers subtract $146,000 from their MAGI, and joint filers subtract $230,000.
- Single filers divide that number by $15,000, and joint filers divide that number by $10,000.
- Individuals under age 50 multiply that number by $7,000, and individuals age 50 and older multiply that number by $8,000.
- Individuals under age 50 subtract that number from $7,000, and individuals age 50 and older subtract that number from $8,000.
Here is an example using a hypothetical single filer at age 50. For consistency, each step is numbered in an identical fashion to the instructions above.
- A 50-year-old single filer has a MAGI of $151,000 in 2024.
- $151,000 – $146,000 = $5,000
- $5,000 ÷ $15,000 = 0.333
- $8,000 x 0.333 = $2,666.64
- $8,000 – $2,666.64 = $5,333.36 (that is the contribution limit)
Alternatively, there are plenty of calculators around the internet that will do the math, though many of them are not yet updated with the 2024 income limits.
