Can I Make A Roth IRA Contribution?

Roth IRAs are a great way to save for retirement, however, there are contribution limits based on your earned income. A Roth IRA is a great option if you are looking to save after-tax dollars, offering the opportunity for tax-free growth and relaxed distribution rules. Unfortunately, eligibility to contribute to a Roth IRA is subject to restrictions, which can cause confusion. So how do you know the answer to “Can I contribute to a Roth IRA?”. Learn more below.

What is a Roth IRA?

 A Roth IRA is a type of individual retirement account (IRA) that allows you to save for retirement on a tax-advantaged basis. Contributions to a Roth IRA are made on an after-tax basis, which means that you pay taxes on the money you contribute to the account upfront, but all qualified withdrawals from the account are tax-free.

This is in contrast to a traditional IRA, in which contributions may be tax-deductible and withdrawals are taxed as ordinary income. The Backdoor Roth IRA is a legitimate tax loophole that allows high earners to continue contributing to a Roth IRA, even if their income exceeds the limits for a direct contribution. 

The strategy is straightforward:

• Make a nondeductible contribution to your traditional IRA. 
• Convert your traditional IRA into a Roth IRA. 

Because the non-deductible contribution to the traditional IRA was made with after-tax dollars, the conversion to a Roth IRA will not result in any additional taxes owed.

This can be a useful strategy for individuals who want to save for retirement on a tax-advantaged basis but cannot make direct contributions to a Roth IRA due to income limits.

Who Can Contribute to a Roth IRA?

Anyone who has earned income and within certain income limits is eligible to contribute to a Roth IRA. Earned income includes wages, salaries, tips, and other forms of payment you receive from working. This does not include income from retirement plans or investments. 

The income limits for Roth IRA contributions are based on your tax filing status and your modified adjusted gross income (MAGI) for both you and your spouse.

In addition to having earned income and being within the income limits, there are a few other requirements you must meet to contribute to a Roth IRA:

• You must be younger than 70 ½ years old
• You cannot be a participant in a workplace retirement plan, such as a 401(k) plan unless your income is below a certain threshold
• You must have a Roth IRA account that is open and available to receive contributions

If you meet all of these requirements, you can contribute to a Roth IRA up to the annual contribution limit. As of 2023, this is currently $6,000 (or $7,000 if you are age 50 or older). For those who are eligible, you may contribute for a given tax year up until the tax filing deadline for that year (typically April 15 of the following year).

Want an easy way of deciding if you are eligible? We created the “Can I Make a Roth IRA Contribution” flowchart. Download it for free!

It addresses key considerations, including:

• Earned Income
• Other (traditional) IRA contributions
• Filing status-based MAGI thresholds

Roth IRA Contribution Rules

In summary, the rules for Roth IRA contributions are as follows below or check out our handy flowchart for more info:

• To be eligible, you must earn an income to contribute to a Roth IRA.
• Be within certain income limits. The income limits for Roth IRA contributions are based on your tax filing status and your modified adjusted gross income (MAGI).
• The maximum amount you can contribute to a Roth IRA is the lesser of your earned income or the annual contribution limit for IRAs, which is currently $6,000 (or $7,000 if you are age 50 or older).
• You may contribute to a Roth IRA for a given tax year up until the tax filing deadline for that year (typically April 15 of the following year).
• For those who are married, you and your spouse (if they have earned income) can each contribute to your own Roth IRA up to the annual contribution limit. This can allow you to contribute a total of twice the annual contribution limit to your Roth IRAs each year.
• If you are married and your spouse does not have earned income, you each may still be able to make contributions. This is known as a spousal Roth IRA contribution, and it allows you to contribute to a Roth IRA for your spouse even if your spouse does not have any earned income.

Why Make a Roth IRA Contribution?

Investing for retirement is key to building wealth. By contributing to a Roth IRA now, you are making an investment that will grow tax free. This means when you take the money out later, you will not have to pay taxes on it. That is a great deal in your golden years and can be a huge weight off your shoulders. 

There are some occasions when a Roth IRA contribution can include a tax credit, called a “Saver’s Credit”. One must meet certain income limits to qualify. We recommend speaking to a tax and financial professional to see if your family is eligible. 

Ready To Take Advantage of Your Roth IRA?

At The Retirement Planning Group, we work with thousands of families to ensure they are making the most of their retirement contributions, including Roth IRA contributions.

We begin our process with a no-obligation phone call where we discuss your options, and answer any questions you may have about a Roth IRA contribution. Give us a call today to see how we can help.

For more guidance on Roth IRA contributions, don’t forget to check out our Guide to Roth IRAs!