Derek Burnett
Derek Burnett is a Contributing Writer at Bottom Line Personal, where he writes frequently on health and wellness. He is also a contributing editor with Reader’s Digest magazine.
Saving for retirement has its complicated aspects, no doubt about it. But if you were to boil it all down to one basic rule, it would be, “Save just as much for retirement as you’re able to.” Leaving aside everything else, that’s quite obviously the way to amass the greatest amount of cash in your stash, but also the best way to capitalize on the power of compounding interest, but this can be complicated due to the annual maximum contribution to a Roth IRA being limited.
It would be nice if the maximum contribution to a Roth IRA each year were limitless. But that’s not the world we live in. Instead, the IRS sets an annual maximum on your Roth IRA contributions. For tax year 2024, the general maximum contribution to a Roth IRA is set at $7,000 (There are exceptions that are discussed below). If you get to the end of the year and discover that you’ve fallen short of the limit but would like to maximize your contribution, don’t worry. You have until tax filing day to contribute to your Roth IRA.
Usually, contribution maximums increase from one year to the next to match the rise in cost of living. Around October or November of each year, the IRS announces what the following year’s limits will be. You should expect the limit to be higher in 2025 and beyond than it is as of this writing in 2024. In 2023, the general limit was $6,500, meaning that the IRS bumped up the annual contribution maximum by $500 in 2024.
If you have multiple IRAs, the annual contribution maximum applies to the total of funds contributed across all of those accounts, not to each one separately.
One exception to the $7,000 annual limit applies to people over 50. Because workers in that age bracket have fewer years left until retirement and are often scrambling to maximize their saving, this exception is known as the “catch-up” contribution limit. For Roth IRAs in 2024, workers over age 50 may contribute an additional $1,000, bringing their total annual maximum to $8,000.
The other major exception to the $7,000 limit is tied to your annual income. If your modified adjusted gross income (MAGI) is less than $146,000 for the year, then the $7,000 contribution limit ($8,000 if you’re over 50) applies to you. But for workers with higher MAGIs, the limit is lower. The IRS provides the following guidance:
| Filing Status | MAGI Limit | Roth IRA Contribution Limit |
| Single; head of household; married filing separately if did not live with spouse during year | Less than $146,000 | $7,000 ($8,000 for 50 or older) |
| $146,000-$160,999 | Reduced contribution | |
| $161,00 or higher | No contribution allowed | |
| Married filing jointly; surviving spouse | Less than $230,000 | $7,000 ($8,000 for 50 or older) |
| $230,000-$239,999 | Reduced contribution | |
| $240,000 or higher | No contribution allowed | |
| Married filing separately if lived with spouse at any time during year | Less than $10,000 | Reduced contribution |
| $10,000 or higher | No contribution allowed |
Besides the MAGI limit, there’s also an earned income limit which states that your Roth IRA contribution may not exceed your taxable income for the year. This might apply to part-time workers, for example.
If you’re concerned or confused about which annual contribution limits and income levels apply to you, plug your numbers into NerdWallet’s Roth IRA Calculator. It will tell you not only what your limits are but how much you need to save to hit your retirement targets.
Some people get around the Roth’s income limits by setting up what’s called a “backdoor Roth.” To do this, they make their contributions into a traditional IRA and then roll the funds over into a Roth. That strategy leverages two important features of these fund types…First, that traditional IRAs have no income limits…and second, that rollovers into Roths are not subject to the annual contribution limits. It’s important to convert those funds immediately, before claiming the contributions to the traditional IRA as a tax deduction to avoid having to pay taxes on the amount you’ve rolled over. If you’re not well versed in finance, talk to an advisor before you try to go about this by yourself. There may be other tax considerations beyond those just discussed.
What happens if, in your zeal to sock away as much as possible for retirement, you realize that you’ve gone over the IRS’s allowable amount? You should definitely discuss your options with your tax advisor. If you’ve discovered your error before filing your taxes for the year, your advisor may suggest that you simply withdraw the excess (and any earnings on them). It’s important that you do this. If not, the IRS will apply a penalty of 6% of the value of the excess annually, which might just bring their net investment yield to a screeching halt. If you only come to recognize that you’ve exceeded your limit after your return has been filed, your advisor will likely counsel you to use the six-month grace period provided by the IRS for you to withdraw the excess funds plus any earnings, and file an amended tax return. That helps you avoid the penalty.
It’s true that $7,000 isn’t an awful lot of money when you consider that many experts urge workers to save more than 10 times their annual salary by the time they reach retirement. If you work for an employer that offers a 401(k) benefit, you can take advantage of its much higher contribution limit, which is $23,000 for 2024. Many employers also match employee contributions, which is like injecting your retirement fund with steroids. Having both a Roth IRA and a 401(k) will not only allow you to contribute more each year, but will give you greater flexibility when it comes to managing your tax situation during retirement.
