If you're on a mission to beef up your retirement savings this year, you should check out the Roth IRA (individual retirement account). This account comes with more flexibility than you'll get with a 401(k) and you'll be able to set yourself up for tax-free income during retirement.
Since you won't be able to make direct contributions to a Roth IRA when your income exceeds the limits, you want to jump on this opportunity as soon as possible if it piques your interest. We've jotted down four moves you want to make this year to help you maximize the power of a Roth IRA.
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1. Determine your Roth IRA goals
Setting Roth IRA goals can put you on the path toward a six-figure Roth IRA in less than 15 years. If you haven't started saving for retirement or need to beef up your savings, here are some questions to consider to motivate you to crush your Roth IRA goals this year:
- What type of lifestyle do you want to live during retirement?
- Do you want to earn tax-free income during retirement?
- Do you expect your income to rise above the annual Roth IRA limits?
If there's a good chance that you'll be in a higher tax bracket later, then contributing to a Roth IRA is a no-brainer in 2024. Knowing your goals and the type of lifestyle you want to live later can also motivate you to make better financial decisions today so you can have more money to stash away in a Roth IRA.
2. Contribute as much as possible
If you qualify to tuck away money in a Roth IRA in 2024, you'll be able to tap into the biggest contribution limits we've ever seen. The 2024 contribution limits are up by $500, so it will be a bit easier to grow your savings.
This year, retirement savers may put up to $7,000 in a Roth IRA (or $8,000 if you're 50 or older). But keep in mind that your maximum allowable contribution may be reduced or "phased out" if your modified adjusted gross income (MAGI) exceeds the limitation. For example, you'll only be allowed to contribute the maximum amount to a Roth IRA if your modified adjusted gross income is under $146,000 as a single or head of household filer for 2024.
3. Put your contributions on autopilot
If you put your contributions on autopilot this month, you'll be able to achieve your Roth IRA contribution goals without breaking a sweat.
Let's say you are 45 years old and want to maximize your contribution power in 2024. You can tuck away up to $7,000, which comes out to about $583 per month for 12 months. If you're just getting started now, you can still stretch your contributions over a 12-month period since you have until April 15, 2025, to contribute money to a 2024 Roth IRA.
After you determine how much you want to contribute, then it's time to automate the process. Set up recurring contributions from a checking account to a Roth IRA every month or week to make sure you make progress toward your goals. It's easy to skip Roth IRA contributions if you have to manually put the money in your account every month.
But before you get started on your 2024 contributions, you still have time to make progress toward 2023 contributions if you qualify. You can contribute up to $6,500 if you are under 50 ($7,500 if you are older) to a 2023 Roth IRA. If you're able to squeeze in the maximum contribution for 2023 and 2024, you'll be able to boost your Roth IRA balance by five figures within 12 months.
4. Invest your contributions
If you want to give your Roth IRA a chance to grow in a decent amount of time, you have to invest the money in your account. Unlike employer-sponsored retirement plans like a 401(k), you have the flexibility to invest in individual stocks and other assets in a Roth IRA. So, if you want to build a dividend income machine, a Roth IRA gives you the freedom to pick your favorite dividend assets and earn tax-free income during retirement. This extra income can supplement your social security income.
The Roth IRA can be a powerful retirement account if you know how to maximize your benefits. So if you qualify to make direct contributions to the account in 2024 and it makes sense for your financial situation, you'll want to hop on the opportunity soon. Getting more tax-free income from your Roth IRA during retirement is a benefit that can make your retirement more rewarding.
