A Roth IRA is a type of individual retirement account that allows for tax-free withdrawals in retirement in the United States. In 2023, the contribution limit for a Roth IRA is $6,500 for those under the age of 50 and $7,500 for those 50 and over. There are many benefits to having a Roth IRA including no minimum distribution and no taxes on any gains. Contributions to a Roth IRA are made with after-tax dollars and qualified withdrawals, including earnings, are tax-free. There are income limitations for contributing to a Roth IRA, and early withdrawals may be subject to taxes and penalties. It’s important to understand Roth IRA rules and requirements in order to make informed decisions about saving for retirement.
What Is A Roth IRA
A Roth IRA is a retirement account that offers you a tax benefit when you retire. Unlike traditional IRAs and 401(k) plans Roth IRA contributions are not tax deductible but you also do not pay taxes when you withdraw money at age 59 ½ +.
Roth IRA Contribution Limits 2023
The 2023 Roth IRA contribution limit is $6,500 for the year. If you’re 50 or older you can contribute up to $7,500 for the year. These contribution limits increased by $500 compared to 2022. So, if you haven’t contributed to your Roth IRA in 2022 yet, you can still contribute up to $6,000 or $7,000 if you’re 50 or older before April 15th. The amount you contribute also cannot exceed what the IRA defines as “earned income” or taxable compensation. This includes wages, salaries, tips, commissions, professional fees and self-employment income. Charles Schwab shares more details here on what’s considered earned income for a Roth IRA.
The amount you contribute to a 401(k) plan does not impact the amount you can contribute to a Roth IRA but the amount you contribute to a Traditional IRA will affect the amount you can contribute to a Roth IRA. If you contribute to both a IRA and Roth IRA in the same year, the total contributions to both of these accounts cannot exceed $6,500 if you’re under 50, or $7,500 if you’re 50 or older.
Setting Up A Roth IRA For A Child
You can also set up a custodial Roth IRA for your child, subject to the same contribution limits outlined above. This means that contributions for your child’s Roth IRA you control cannot exceed what your child earned in 2023.
Roth IRA Income Limits 2023
There are income limits on Roth IRA eligibility which is why it’s important to start your contributions to a Roth IRA the first year you get a W-2. If you are single, and your modified AGI is $138,000 the amount you can contribute to a Roth IRA begins to phase out. You cannot contribute to a Roth IRA in 2023 as a single filer if you make more than $153,000.
If you are married filing jointly and your AGI is $218,000 or above the amount you’re eligible to contribute begins phasing out. If you are married filing jointly you cannot contribute to a Roth IRA if you make more than $228,000 in 2023. Once you exceed this income you will need to explore options to setup a backdoor Roth IRA if you’re interested in having a Roth IRA. To take full advantage of a Roth IRA, set up a Roth IRA when you first start collecting a paycheck. You never know when you may get to the point where your income makes you ineligible to contribute to a Roth IRA.
Here are the contribution limits by income and filing status for a Roth IRA in 2023:
When Can You Contribute to a Roth IRA
Contributions to a Roth IRA can occur at anytime during the year. You may contribute the full amount all at once or contribute multiple times during the year up to the maximum. Once a new calendar year starts, you can still make contributions for the previous calendar year up until April 15th (when taxes are due). For example, you can make a contribution for 2022 to your Roth IRA until April 15, 2023.
Roth IRA Withdrawals
Since you’ve already paid taxes on your contributions, you can withdraw your contributions at any time with no restrictions. If you withdraw earnings on those contributions though, you may be taxed or penalized on withdrawing this money.
Roth IRA rules dictate that once you’re age 59 ½, as long as you’ve held the account for at least five years, you can take distributions on all money within the account and do not have to pay taxes on that money.
Roth IRA Minimum Required Distribution
With a Roth IRA there is no required minimum distribution. You don’t ever have to withdraw from this account if you don’t need to. Additionally, you can pass this money onto your heirs.