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Retirement Planning

Roth IRA income limit guidelines

The Roth IRA is a retirement investment account that offers tax-free growth and withdrawals.

Not everyone is eligible to contribute to a Roth IRA, as participation largely depends on how much you earn in a year. Those who meet the IRS guidelines and expect high tax rates down the road might consider a Roth IRA because future qualified withdrawals are typically tax-free. But keep in mind that Roth IRA income limits can change, so it's important to stay up to date on annual guidelines. 

Benefits of Roth IRA

There's a tax benefit of a Roth IRA that comes at the back-end. When you contribute to a Roth IRA, you use after-tax dollars, so there's no tax deduction for your contributions. However, the money you deposit in the Roth IRA (along with your investment earnings) won't be taxed when you make qualified withdrawals. This is a key difference between a Roth IRA and a traditional IRA, where the funds you withdraw are fully or partially taxable in the year you withdraw them. Thus, Roth IRAs can work well for people who expect their taxes to be higher in retirement than what they currently are. Groups who fall into these categories might be younger savers, like Gen Z, or people who aren't earning a lot of income for a period of time.

Investments in Roth IRAs can help you establish tax diversification in retirement. You can structure your tax-free Roth IRA withdrawals to help reduce your taxes during retirement, potentially helping your savings last longer.

Another perk of the Roth IRA is that there are no age limits. The investment account can be established for a minor and does not require mandatory distributions after age 72 (unlike a traditional IRA). Plus, with a Roth IRA, you can withdraw your contributions without paying a penalty- even before you turn 59 ½. Withdrawals that include earnings, however, may be subject to income tax and an additional 10% penalty if taken before age 59 ½.

Read more about the differences between a Roth IRA and a traditional IRA.

Roth IRA income limits

You can't contribute to a Roth IRA if you make too much money. If you are single, you must have a modified adjusted gross income (MAGI) under $161,000 to contribute to a Roth IRA for the 2024 tax year, but contributions are reduced starting at $146,000. For reference, MAGI is generally defined as taking your adjusted gross income (found on the bottom of the first page of your Form 1040) and adding back certain deductions and exclusions.

For married couples filing jointly, your MAGI must be less than $240,000, with reductions beginning at $230,000. Make sure to double-check the annual guidelines, which can change each year.

In terms of how much you can put into the account, generally you can contribute $7,000 per year unless you are over 50, in which case you can contribute more, at $8,000. 

Why is there an income limit on Roth IRA?

Roth IRAs can be a great tool for saving for retirement. However, the IRS has established income limits for participating in Roth IRAs so that high income earners don’t benefit more from tax advantages than average workers.

Alternatives to Roth IRA

Roth IRAs have the potential to be an effective retirement account option with tax advantages, but there are other tax advantaged options you can consider, such as annuities. Annuities, unlike Roth IRAs, have no annual income limits or contribution limits.* This could be especially helpful for older people closer to retirement who want to put more money away with retirement looming.

*Annuities are intended as vehicles for long-term retirement planning, which is why withdrawals reduce an annuity’s remaining death benefit, contract value, cash surrender value and future earnings. Annuities also may be subject to income tax and, if taken prior to age 59 ½, an additional 10% IRS tax penalty may apply. Because Protective and its representatives do not offer legal or tax advice, it is important that you talk with your own legal and tax advisor about your specific tax situation.




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