The Internal Revenue Service (IRS) always gets its cut, but a Roth individual retirement account (IRA) lets you get the pain over with up front. Then, you can enjoy tax-free growth and, best of all, tax-free income in retirement.
But Roth IRAs have income limits. Earn too much and you’ll have to devise a work-around to get your money into this type of account.
2024 Roth IRA income and contribution limits
Traditional employer-sponsored retirement plans and IRAs enable you to save money before you pay taxes on it. Then, when you retire and start withdrawing that money to live on, you pay income taxes on those withdrawals — presumably at a lower rate.
Roth IRAs work in reverse: You pay income taxes on the money you put in but, from then on, no income taxes apply. The money in a Roth IRA builds over time, with no income taxes due, and you don’t have to pay taxes on withdrawals in retirement, either.
The parameters of this government largesse change annually. For 2024, the IRS only allows you to save a total of $7,000 across all your traditional and Roth IRAs, combined. This figure is up from the 2023 limit of $6,500. If you are 50 or older, you can save an additional $1,000, totaling $8,000 across all accounts.
But, for Roth IRAs, you can only contribute the maximum amount up to certain income limits. Your tax filing status also impacts how much you can contribute.
For 2024, those modified adjusted gross income (MAGI) and contribution limits are:
| Tax filing status | MAGI | Allowed contribution |
|---|---|---|
Married filing jointly/qualifying widow(er) | $0-$229,999 | $7,000 |
$230,000-$239,999 | Reduced contribution | |
$240,000+ | $0 | |
Married filing separately (and you lived with your spouse during the year) | $0-$9,999 | Reduced contribution |
$10,000+ | $0 | |
Single, head of household or married filing separately (and you did not live with your spouse during the year) | $0-$145,999 | $7,000 |
$146,000-$160,999 | Reduced contribution | |
$161,000+ | $0 |
The consequences of a high income on Roth IRA contributions
“Once you hit that top end, you’re phased out based on your income,” said Isaac Bradley, director of financial planning at Homrich Berg, a registered investment adviser firm.
If your income exceeds the cap — $161,000 for single filers, $240,000 for married couples filing jointly — you may not contribute to a Roth.
You’re not completely out of luck, said Bradley. You can worm into a Roth through a “back door Roth conversion.” That involves establishing a new, traditional IRA account, putting money in there that you have already paid taxes on, then immediately converting that post-tax money into a waiting Roth IRA. It’s a tedious process, but it at least enables you to stoke a Roth regardless of your income, said Bradley.
Or, just leave the post-tax money in a traditional IRA. “You just don’t get a deduction for it,” said Bradley.
But, noted Beth Lynch, a financial advisor with Fort Pitt Capital Group, a Roth 401(k) sponsored by your employer does not have an income limit. “The income limits only apply to freestanding Roths,” she pointed out.
How to calculate your reduced Roth IRA contribution
The IRS provides instructions for how to calculate the amount of your reduced Roth IRA contribution for the 2023 tax year (These figures may change when the IRS releases guidance for the 2024 tax year).
First, you’ll need to calculate your MAGI using worksheet 2-1 in IRS Publication 590-A.
Then, subtract one of the following from your MAGI, depending on your filing status:
- $218,000 for joint filers and qualifying widows or widowers
- $0 for married filing separately filers who lived with a spouse during the year
- $138,000 for all other filers
Next, divide the difference by $15,000, or $10,000 for joint filers, qualifying widows or widowers, or married filing separately filers who lived with a spouse during the year.
After that, multiply that quotient by the maximum contribution limit.
Finally, subtract that product from the maximum contribution limit to get the amount of a reduced Roth IRA contribution you can make.
What happens if you contribute too much to a Roth IRA
If you somehow contribute more than the allowed amount to your IRAs in a given year, both traditional and Roth, all together, you have until April 15 (or October 15 if you filed an extension) the following year to correct the error without invoking a fine. If you leave the money in anyway, you will have to pay a fine.
If you accidentally put too much money into a Roth or, depending on your income, any money at all, “pull it right out,” said Bradley, to avoid a 6% annual penalty.
Other rules to consider for Roth IRAs
The IRS allows you to keep adding to your Roth IRA past age 70 1/2, and you can leave money in the Roth for the rest of your life.
It also stipulates that if you want to set up an account as a Roth, you must do so when you establish it. That means that you can’t buy, say, an annuity and then try to make it into a Roth IRA after the fact.
Frequently asked questions (FAQs)
If you are a single, head of household or married filing separately (and you did not live with your spouse during the year) taxpayer, with modified adjusted gross income of under $146,000, you can save the maximum in a Roth IRA. If your MAGI is $146,000 or greater, the amount you can contribute is reduced or eliminated altogether.
If you are part of a married couple filing jointly or a qualifying widow or widower with modified adjusted gross income of under $230,000, you can save the maximum in a Roth IRA. If your MAGI is $230,000 or greater, the amount you can contribute is reduced or eliminated altogether.
If you are married filing separately (and you lived with your spouse during the year), you can make a reduced contribution if your MAGI is below $10,000. Above that level, you can’t save into a Roth IRA at all.
If you set up a Roth and then your income shoots past the income limit, “you no longer qualify for contributions,” said Bradley.
One way to wriggle through the regulations is to take your tax hit up front with traditional IRA contributions and then immediately convert that money into an existing Roth account. At that point, you’ve paid your taxes, and the Roth can receive the conversion without any more taxes extracted.
“You can always contribute to a traditional IRA even if you’re above the income limit, “said Bradley. “You just don’t get a deduction for it.”
“The Roth is thought of as the more favorable for a lot of people in that the money that goes in is tax-free going forward. The reality is that a lot of high-income earners may be better off doing a traditional IRA so they get the current deduction,” he said. You can always contribute to a traditional IRA but, after a certain point, you can’t deduct what you put in, if you also have access to an employer-sponsored plan.
If you have an extra-rich year (congrats!), carefully examine the range of retirement income accounts that your employer offers, recommended Megan Slatter, a wealth advisor with Crewe Advisors. Work with your financial advisor to see how you can allot money into different types of accounts to create an array of accounts that make the most of pre- and post-income tax advantages. If you must, she said, simply pay your income taxes and set up an investment account.
