Are you considering a 2023 IRA contribution before the April 15, 2024 deadline? Below, we cover important considerations, including contribution and income limits and whether a Roth or Traditional IRA contribution makes sense for you.
🧠 What you need to know
Both Roth and Traditional IRAs offer unique tax advantages that can enhance your retirement savings strategy. Traditional IRAs allow for tax-deductible contributions and tax-deferred growth, providing an upfront tax break. Roth IRAs, on the other hand, offer tax-free growth and tax-free qualified withdrawals in retirement, presenting a valuable option for tax diversification.
For the 2023 tax year, you can still contribute up to $6,500 if you’re under 50, and $7,500 if you’re 50 or older by April 15, 2024. Planning ahead, the 2024 contribution limits increase to $7,000 and $8,000, respectively, allowing for even more opportunities to save.
Eligibility rules for Roth IRAs
For Roth IRAs, if you file 2023 taxes as a single and your income falls below $138,000, you can contribute the maximum $6,500 to a Roth IRA. If your income falls between $138,000 to $153,000, your maximum contribution will vary. For example, at $144,000, you can only contribute $3,900 if you’re under 50 and $4,500 if 50 and over.
If married, filing jointly, you can contribute the maximum $6,500 if your joint income falls under $218,000. The max contribution goes down incrementally up until $228,000. To find your max potential Roth IRA contribution, take a look at this detailed table from Schwab for 2023 and 2024 income levels.
Eligibility rules for Traditional IRAs
For single filers, there is no income restriction to contributing to a Traditional IRA or to deducting the contribution from income in calculating your taxes. However, if you have a retirement plan at work, restrictions may apply. Single and below $73,000 in income, deduct the full amount. Between $73,000 and $83,000, phased deductions.
For married filing jointly, if you have a retirement plan at work, then you can only contribute the max if your income is $116,000 or less. If your income is between $116,000 and $136,000, then phased deductions apply. For married filing jointly, if your spouse has the retirement plan at work, then you can only contribute the max if your joint income is $218,000 or less. Phased deductions apply for income of $218,000 - $228,000.
What if your income is higher?
If your income surpasses the phase-out ranges, you can still contribute to a non-deductible IRA without the benefit of a tax deduction. This would be a new account. Why would you do this? All growth in the portfolio is tax-deferred, meaning no taxes on gains until after retirement. You can execute trades without having to worry about capital gains taxes until retirement.
You could also take advantage of a "backdoor Roth IRA." For example, first make a contribution to a non-deductible traditional IRA. Then convert the traditional IRA to a Roth IRA by transferring your contribution to a Roth account. The converted amount is generally tax-free, as it involves after-tax contributions. However, if you have existing pre-tax funds in IRAs (from previous deductible contributions or rolled-over 401(k)s), the conversion may incur taxes.
🤝 How can Mezzi help?
Once you make the contribution, you’ll have more assets and potentially another account to manage.
Mezzi makes it easy to effectively manage all of your investment accounts in one place without changing a thing. We recently launched Account Tags so you can answer important questions about your investments by grouping your accounts in ways that are meaningful to you:
- All of your retirement accounts, including IRAs, Roth IRAs, and 401(k)s.
- Compare your retirement assets with your taxable assets
- View your family’s asset breakdown across retirement and taxable accounts.
