If you need to rack up more money to fund your retirement lifestyle, don't fret. There's still time to make moves that can give your retirement savings a makeover.
For instance, if you meet the income requirements, you can stash money away in a Roth IRA (individual retirement account). This is separate from an employer-sponsored retirement plan like a 401(k).
You can open and manage an IRA on your own while taking advantage of your retirement plan at work. And if you're self-employed or working part-time, you can use an IRA to beef up your retirement savings. A Roth IRA will allow you to get your tax bill out of the way now, so you can enjoy tax-free income during retirement.
If you're not familiar with the Roth IRA, here are a few benefits that can make retirement planning more exciting after you turn 50.
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Unlock higher contribution limits
If you're trying to build a six-figure Roth IRA, you'll need to contribute as much as you can every year. Fortunately, the contribution limits have climbed higher this year, making it easier to supercharge your retirement savings.
For 2024, the regular annual contribution limit for a Roth IRA is rising to 7,000. But the deal gets sweeter as you get older. Individuals who are age 50 or older are eligible to make catch-up contributions of up to $1,000 in addition to the regular IRA contribution limit. That means you'll be able to set aside up to $8,000, as long as you've earned that much money during the year.
To make the full $8,000 contribution to a Roth IRA in 2024, your modified adjusted gross income (MAGI) must be less than $146,000 if you're single or head of household. It can't exceed $230,000 if you're married filing jointly.
Your maximum contribution gradually phases out as your income rises, and you can't make Roth IRA contributions if your MAGI exceeds $161,000 if single or $240,000 if married filing jointly. If you're thinking about picking up a consulting gig to boost your income this year, make sure your income doesn't exceed the limits if you want to make direct contributions to a Roth IRA. However, if your income jumps higher than you expected, you can always explore a backdoor Roth IRA.
Collect tax-free income during retirement
Since a Roth IRA is funded with after-tax dollars, you don't have to worry about a tax bill if you withdraw funds during retirement.
Let's say you want to build a six-figure Roth IRA, which isn't farfetched if you contribute the maximum amount to an IRA for 12 or 13 years. You could actually hit your goal sooner if you keep up with rising contribution limits and invest your contributions in high-quality assets. When you reach 59 1/2, you could withdraw the profits and income in your account 100% tax-free as long as you've checked the box on the five-year rule.
Forget about required minimum distributions
For certain retirement accounts, you'll have to start thinking about required minimum distributions (RMDs) when you're in your 70s. RMDs are the minimum amounts you must withdraw from a tax-deferred retirement account, like a traditional 401(k), to avoid a tax penalty.
Fortunately, you don't have to worry about RMDs for a Roth IRA during your lifetime. Since you've already paid taxes on the money in the account, you don't have to deal with the IRS again during your retirement. If you don't need to use the money in your Roth IRA, you can let it sit in your account and continue to grow.
Unlock more Roth IRA benefits after 50
A Roth IRA is loaded with benefits you can enjoy after you turn 50. You can start tucking away more money in your account so that you can be on the path toward more tax-free income during retirement. You can also avoid required minimum distributions, which makes it easier to keep growing your money and building your nest egg.
If you qualify to contribute to a Roth IRA in 2024 and you think your tax bill might be higher later, try to stuff as much money in the account now so you can live the retirement you've always dreamed of later.
