Traditional IRAs vs. Roth IRAs
Before getting into the IRA contribution limits and Roth IRA income limits for 2024, it’s probably best to explain the differences between traditional IRAs and Roth IRAs. The key difference is how—or should I say, when—they are taxed.
With a traditional IRA, your contributions are made with “pre-tax” dollars. That generally means contributions are tax-deductible in the year you make them (although your tax-deductible contributions might be limited if you or your spouse is covered by a workplace retirement plan or your income is too high). Money in the account then grows on a tax-deferred basis, and is subject to federal income tax when you make withdrawals in retirement.
On the other hand, contributions to a Roth IRA are made with “after-tax” dollars. In other words, they’re not tax-deductible. However, funds in the account grow tax free, so you won’t pay taxes on withdrawals in retirement.
In addition, you might also qualify for a tax credit of up to $1,000 ($2,000 for married couples filing a joint tax return) for putting money into either a traditional or Roth IRA. However, this credit—commonly called the Saver’s Credit—is only available to low- and moderate-income individuals. So, to claim the credit, your federal adjusted gross income (AGI) must be at or below a certain amount, which is based on your filing status.
Related: IRA vs. 401(k): How These Retirement Accounts Differ
Early Withdrawal Penalties
A 10% early withdrawal penalty might apply if you take money out of an IRA too soon. With a traditional IRA, you might be hit with the penalty if you withdraw money from the account before you’re 59½ years old. The penalty is in addition to any income tax imposed on the amount withdrawn. The penalty is less likely to apply when you take money out of a Roth IRA. Any contributions you make to a Roth can be withdrawn tax free and penalty free at any time. However, if you withdraw investment gains before age 59½, you might have to pay taxes and the 10% early withdrawal penalty. There are exceptions to the 10% early withdrawal penalty, though. Penalty-free withdrawals from either a traditional or Roth IRA are possible if the money is used to pay certain education expenses. A one-time early withdrawal of up to $10,000 is also permitted if the money is used for a first-time home purchase. Other exceptions might also apply. Finally, you’re also required to take out a certain amount of money from a traditional IRA each year when you turn 73 years old. These mandatory withdrawals are called required minimum distributions. They aren’t necessary with Roth IRAs, though. Related: 10 Best Investments for Roth IRA AccountsIRA Contribution Limits for the 2024 Tax Year
For the 2024 tax year, the annual contribution limit for a traditional or Roth IRA is $7,000 for people under age 50 (up from $6,500 for 2023).
If you’re 50 or older, you can contribute an additional $1,000 for the 2024 tax year (same amount as in 2023). That means you can kick in a total of $8,000 for 2024 (up from $7,500 for 2023). The extra $1,000 is called a “catch-up” contribution.
The annual limits are combined limits that apply to all your traditional and Roth IRAs. So, for example, if you’re under age 50 and put $5,000 in a traditional IRA in 2024, then you can’t put more than $2,000 in a Roth IRA (or any other IRA) for the 2024 tax year.
YATI Tip: You have until the tax filing deadline for the year to make contributions to an IRA. So, for example, you have until April 15, 2024 (April 17 for residents of Maine and Massachusetts) to put money in an IRA for the 2023 tax year. If you request an automatic filing extension for your 2023 tax return, you’ll have until Oct. 15, 2024, to contribute to an IRA for the 2023 tax year. Similar deadlines will apply for 2024 IRA contributions.
Related: 10 Best Rollover IRA Accounts [Where to Roll Over a 401(k)]
Roth IRA Income Limits for the 2024 Tax Year
The amount you can contribute to a Roth IRA might be less than the year’s IRA contribution limit (and possibly $0) if your income is above a certain amount. That’s because Roth IRAs also have income limits that you need to worry about if you’re a high-earner.
As with the basic IRA contribution limits, the Roth IRA income limits are adjusted for inflation each year. The IRS released the new income limits for 2024 when it announced the general IRA contribution limits.
For the 2024 tax year, the maximum amount you can contribute to a Roth IRA is gradually reduced to zero if your 2024 modified AGI is:
- $146,000 to $161,000 for single and head-of-household filers ($138,000 to $153,000 for 2023)
- $230,000 to $240,000 for joint filers ($218,000 to $228,000 for 2023)
- $161,001 or more if you use the single or head of household filing status on your tax return ($153,001 for 2023)
- $240,001 or more if you’re married and file a joint return ($228,001 for 2023)
Where to Open an IRA
If you currently don’t have a traditional IRA or Roth IRA, perhaps now is the time to open one. Even if you have a 401(k) account through your employer, you can still contribute to an IRA—and save even more for retirement.
In fact, when starting a retirement plan and building retirement savings, it’s common to use a variety of retirement accounts at once (this can include the use of health savings accounts, too). You can also use a mix of traditional and Roth accounts for greater tax diversification.
So, if you’re looking to open an IRA, we suggest going with a highly reputable financial institution. You can learn more about two such IRA providers that we recommend below.
SoFi Invest IRAs
- Account minimum: None
- Minimum initial deposit: None
- Fees: No annual or opening fees; $20 closing fee
SoFi Invest | IRAs
4.4
No annual or opening fees. $20 closing fee.
- SoFi Invest's IRAs allow you to trade or invest in stocks, ETFs, and options with no commissions (or options contract fees) and no account minimums.
- Invest for as little as $1 with fractional shares.
- Free robo-advisory services, including goal planning and auto-rebalancing.
Pros:
- No annual or opening fees
- Good selection of available investments
- No options contract fees
- DIY and automated investing options
- No management fees on automated account management
- Fractional shares
Cons:
- Modest closing fee ($20)
- No mutual funds
- Limited trading tools
- No tax-loss harvesting
- No socially responsible robo-advisor functionality
Betterment IRAs
- Account minimum: None
- Minimum initial deposit: $10
- Fees: $4/mo. or 0.25% annually
Betterment | IRAs
3.6
$4/mo. or 0.25% annual fee*. Premium: Additional 0.15% annual fee.**
- Betterment IRAs give you the tools, inspiration, and support you need to become a better investor.
- Start with as little as $10 and use the top-rated mobile app to set up automatic investing into diversified ETF portfolios.
- By upgrading to Premium, you can unlock unlimited financial guidance from a Certified Financial Planner™.
Pros:
- Hands-off investment management
- Diversified portfolio that automatically rebalances
- Low-cost investment selection
Cons:
- High account fees
- Limited investment selections
* 0.25% annual fee triggered if you set up recurring monthly deposits totaling $250 or more, or reach a balance of at least $20,000 across all Betterment accounts.
** $100,000 minimum balance required to sign up for Premium.
