Roth IRA Earnings Thresholds for 2023 and 2024 Annual Updates
Roth IRA Earnings Thresholds for 2023 and 2024 Annual Updates
Roth Individual Retirement Accounts (IRAs) grant notable tax perks, yet they adhere to annual contribution limits set by the Internal Revenue Service (IRS). In 2024 and 2025, these maximum Roth IRA contributions amount to $7,000, or $8,000 if you're 50 or older, for most individuals. However, the situation becomes more complex if you possess a substantial income.
Let's delve into the intricacies involved in determining the annual contribution limit for a Roth IRA.
Which Roth IRA account is right for you? Explore top Roth IRA accounts here.
What is the maximum contribution to a Roth IRA?
What is the maximum contribution to a Roth IRA in 2023, 2024, and 2025?
Your Roth IRA contribution ceiling is contingent on your filing status and modified adjusted gross income (MAGI). If you're unsure of your MAGI, seek guidance on calculating it below.
The subsequent table provides information on contributions you may make to your Roth IRA in 2024 and 2025:
Filing Status: Single, Head of Household, or Married Filing Separately (if you did not live with your spouse during the year)
You can make the full yearly contribution if your MAGI falls below: $146,000 (2024) or $150,000 (2025)
You can contribute a reduced amount if your MAGI ranges between: $146,000 to $161,000 (2024) or $150,000 to $165,000 (2025)
Direct contributions to a Roth IRA are not permitted if your MAGI surpasses: $161,000 (2024) or $165,000 (2025)
Filing Status: Married Filing Jointly or Qualifying Widow(er)
You can make the full yearly contribution if your MAGI falls below: $230,000 (2024) or $236,000 (2025)
A reduced contribution amount is permissible if your MAGI lies between: $230,000 to $240,000 (2024) or $236,000 to $246,000 (2025)
Direct contributions to a Roth IRA are barred if your MAGI exceeds: $240,000 (2024) or $246,000 (2025)
Filing Status: Married Filing Separately (if you lived with your spouse during the year)
You can make the full yearly contribution if your MAGI falls below: No limits (applicable within specific conditions)
A reduced contribution amount is permitted if your MAGI lies between: $0 to $10,000
Direct contributions to a Roth IRA are not allowed if your MAGI surpasses: $10,000
If you are only eligible to contribute a reduced amount to your Roth IRA, calculate your maximum contribution based on your income. Continue reading to learn more about this process.
If your income prohibits you from contributing directly to a Roth IRA in 2024 or 2025, alternative options are available. Consider a backdoor Roth IRA, which involves contributing to a traditional IRA and then converting it to a Roth IRA. Alternatively, if your income is excessive, contributing to a tax-deferred retirement account might be more advantageous, as it offers immediate tax savings rather than delayed benefits.
How can I compute my modified adjusted gross income (MAGI)?
How can I compute my modified adjusted gross income (MAGI)?
Modified Adjusted Gross Income
Modified Adjusted Gross Income (MAGI) is an income calculation used to ascertain eligibility for various tax deductions, credits, and additional taxes. While AGI is often equivalent to MAGI for most people, it is not detailed on tax return forms, leading to the need for its calculation. To do so, begin by determining your AGI, and following these steps:
- Identify your total income for the year.
- Subtract tax-deductible expenses, such as:
- Half of self-employment taxes (if applicable)
- Student loan interest
- Tax-deferred retirement plans contributions
- Health insurance premiums (if you're self-employed)
- Educator expenses
- Tuition fees
- Health savings account (HSA) contributions
- Alimony (for pre-2019 divorce agreements)
Next, include the following deductions in your computation:
- Student loan interest
- IRA contributions
- Tuition fees
- Half of self-employment taxes
- Adoption-related employer expenses
- Passive income/losses
- Rental losses
- Taxable Social Security benefits
- Foreign income exclusions
- Losses from publicly traded partnerships
What is the maximum contribution to a Roth IRA for high earners?
What is the maximum contribution to a Roth IRA for high earners?
For high earners unable to contribute the maximum amount to a Roth IRA, employ this formula to determine your eligibility in 2024 and 2025:
Or, should you wish to consult recent guidelines, refer to the following table:
Filing Status: Single, Head of Household, or Married Filing Separately (if you did not live with your spouse during the year)
| MAGI Range (2024) | Contributions Permitted ||---------------------------------|--------------------------|| $105,000 to $129,000 | $6,000 || $129,000 to $146,000 | $0 |
| MAGI Range (2025) | Contributions Permitted ||---------------------------------|--------------------------|| $107,000 to $132,000 | $6,000 || $132,000 to $150,000 | $0 |
Filing Status: Married Filing Jointly or Qualifying Widow(er)
| MAGI Range (2024) | Contributions Permitted ||------------------------------------|--------------------------|| $195,000 to $225,000 | $6,000 || $225,000 to $230,000 | $5,500 || $230,000 to $240,000 | $0 |
| MAGI Range (2025) | Contributions Permitted ||------------------------------------|--------------------------|| $199,000 to $229,000 | $6,000 || $229,000 to $236,000 | $5,500 || $236,000 to $246,000 | $0 |
Filing Status: Married Filing Separately (if you lived with your spouse during the year)
| MAGI Range (2024) | Contributions Permitted ||--------------------------------------|--------------------------|| $0 to $10,000 | $6,000 || $10,001 to $12,500 | $0 |
| MAGI Range (2025) | Contributions Permitted ||--------------------------------------|--------------------------|| $0 to $10,000 | $6,000 || $10,001 to $12,500 | $0 |
Note that the contributions are prorated for MAGI ranges provided between the income ranges noted above. To compute your maximum contribution based on your income, use the following formula:
Contribution Amount = [(Max Contribution / Annual MAGI Range) x (Your MAGI - Lower MAGI Limit)]
If you fall within a different income range, modify the formulas accordingly.
- Determine your Adjusted Gross Income (AGI).
- Based on your tax filing status, perform the following actions:
- If you're filing as Single, Head of Household, or Married Filing Separately (if you didn't live with your spouse all year), subtract either $146,000 (for 2024) or $150,000 (2025) from your AGI.
- If you're Married Filing Jointly, subtract $230,000 (for 2024) or $236,000 (2025) from your AGI.
- If you're Married Filing Separately and did live with your spouse during the year, proceed directly to Step 4.
- Divide the result from Step 2 by $15,000 or $10,000 (for Married Filing Jointly, a Qualifying Widow(er), or Married Filing Separately if you lived with your spouse at any point during the year).
- Multiply the result from Step 3 by the annual contribution limit for the year ($7,000 for individuals younger than 50, or $8,000 for those 50 and older in 2024 and 2025).
- Subtract your result from Step 4 from the annual contribution limit.
Wealthy Individuals (High Net-Worth Individuals)
Individuals who have accumulated investable assets totaling at least $1 million. To clarify the process using an example, consider a 40-year-old married couple filing jointly with an AGI of $242,000 who wish to contribute to a Roth IRA in 2025. They would:
- Subtract $236,000 from their AGI of $242,000, resulting in a remnant $6,000.
- Divide $6,000 by $10,000. This leaves them with 0.6.
- Multiply 0.6 by the $7,000 contribution limit for younger adults to obtain $4,200.
- Ultimately, they would subtract the $4,200 from the $7,000 limit, resulting in a maximum annual contribution of $2,800 for each spouse.
Remember, all of your IRA contributions count towards the same limit. If you've also contributed to a traditional IRA this year, that could decrease your maximum Roth IRA contribution even further. Ensure that your total annual IRA contributions remain below $7,000 or $8,000 (for 50+) in 2024 and 2025.
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Most people won't have to be concerned with Roth IRA income limits, but high earners should be mindful of this to avoid making a "Roth IRA excess contribution." Income and contribution limits may vary from year to year, so ensure you review them annually to determine how much you're eligible to contribute.
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Given the text provided, here are two sentences that contain the words 'money', 'retirement', and 'finance':
- For high earners, the maximum contribution to a Roth IRA is contingent on their modified adjusted gross income (MAGI), which can limit the amount of money they can contribute towards their retirement savings.
- Managing your retirement finances effectively involves understanding the income limits for contributing to a Roth IRA, as exceeding these limits can result in penalties and additional tax burdens.