It's absolutely critical that you understand and are aware of your Roth IRA contribution limits, along with other constraints such as those placed on pensions and 401(k)s. By staying informed, you can plan financially and properly assess your tax savings both now and when you finally access your IRA funds. But, what are those limitations, and how do they work? To learn the answers to these questions and more, keep reading.
401K Contributions and Limits
Though not directly related to a Roth IRA, your 401(k) is interconnected. Two years ago, the U.S. government made a temporary law that allowed higher 401(k) contributions a permanent statute. Now, you can contribute up to $15,500 per year, and people over the age of 50 can play catch up by adding an additional $5000 annually.
Limits on Roth IRA Contributions
Roth IRA contributions sit at a low limit of $5000 for those under the age of 50. That equals out to almost $417 each month. But, if you're 50 and older, you can defer $6000 to your IRA. Those limits are set to increase annually in $500 increments, based on current inflation rates.
If you participate in a work-based retirement savings plan and want to move your deductions over to a Roth IRA, there are new limitations in place that could affect that decision.
For example, if your MAGI (Modified Adjusted Gross Income) is between $150,000 and $160,000 for a married couple (between $95,000 and $110,000 for a single individual or household head), your ability to deduct those contributions will be phased out.
SIMPLE IRAs
SIMPLE IRAs are funded both by voluntary salary deductions and employer contributions. Employees, if eligible, can contribute up to 100% of their yearly salary or $11,000, whichever of the two amounts is less. If you're 51 or over, you can make additional annual contributions of up to $2500 - bringing your annual limit to $13,500.
Limitations on Roth IRA Catch Plans
Anyone who is over the age of 50 and currently participating in a Roth IRA, traditional IRA, 403b plan or 401k plan, is allowed to make catch-up payments or contributions up to $5000 per calendar year, with that number increasing each year for inflation.
Before you sit down to work out your retirement savings plan, make sure you understand your Roth IRA contribution restrictions and other caps in place on 401(k) contributions and traditional IRAs.
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