If You Do One Thing in 2024, Increase Your Roth IRA Contributions

It's still "only" March, but it's not too early to make some smart moves to maximize your retirement savings in 2024. If you qualify based on your income, you can save thousands of dollars in a Roth IRA this year. A Roth IRA is one of the best ways to save for the future because it gives you tax-free withdrawals in retirement.

Let's look at a few reasons why you should increase your Roth IRA contributions in 2024.

Opening a Roth IRA is a great way to save for the future

Opening a Roth IRA gives you special advantages in saving for the future. A traditional IRA or 401(k) gives you a tax break on the money you put into the account, but eventually you have to pay taxes on the money you take out in retirement. A Roth IRA is different. With a Roth IRA, you won't get a tax deduction on the money you put into the account in 2024, but your money can be taken out tax-free when you retire.

Roth IRA rules also give you flexible ways to save for other financial goals, not just retirement. You can take out your Roth IRA contributions at any time for any reason, tax-free and penalty-free. And if your Roth IRA has been open for at least five years, you can use some Roth IRA money (contributions and earnings) for a first-time home purchase, medical expenses, and other qualifying reasons.

The IRS allows you to put more cash into a Roth IRA in 2024

For 2024, the IRS has raised the limits on how much money you can put into a Roth IRA. The contribution limits for 2024 are $7,000 for all IRAs (traditional and Roth combined), with an extra $1,000 catch-up contribution allowed for people age 50 and over.

For example, if you're 40 years old, you can contribute up to $7,000 to a Roth IRA (and $0 to a traditional IRA) for 2024. That's about $583 per month. If you want to get some tax deductions, you could also put some money into a traditional IRA, such as $2,000 into a traditional IRA, and $5,000 into a Roth. But your total contributions cannot add up to more than $7,000 for 2024.

And keep in mind: You can make contributions to your Roth IRA for 2024 right up until the April 2025 deadline for filing 2024 taxes. This gives you flexibility to make year-end money moves and maximize your tax-advantaged retirement accounts for every year.

Note of caution: Not everyone is allowed to use a Roth IRA. There are some income limits. If you're a higher earner or have an unusual tax-filing status, you might not be eligible to put money into a Roth IRA.

For 2024, the income limits to qualify to make a full Roth IRA contribution ($7,000 for people under age 50) are:

• Single filers and heads of household: Income must be less than $146,000
• Married filing jointly: Income must be less than $230,000

People who are married filing separately are not allowed to make any Roth IRA contributions if their income is $10,000 or higher.

See how your money can grow with a Roth IRA

Let's say you're 35 years old and married filing jointly, with a combined income of $120,000. For 2024, you and your spouse are both allowed to contribute $7,000 to two separate Roth IRA accounts. That makes a total of $14,000 for 2024.

Let's assume you can contribute $14,000 per year to Roth IRAs for the next 30 years. And let's say that you invest your Roth IRA money in a diversified portfolio of stocks and bonds that generates an average return of 8% per year. After 30 years, you'd have $1.7 million saved for retirement -- tax-free.

Bottom line

Opening a Roth IRA can be one of the best ways to save for the future, especially if you're just getting started in your career. If you already have a Roth IRA with a brokerage firm, consider putting more money into it for 2024. If you qualify based on your income and filing status, the IRS will let you contribute $7,000 to a Roth IRA this year, or $8,000 for people age 50 and over. Long-term tax free growth and tax-free income in retirement can make a Roth IRA your best investment ever.