Roth IRA Income Limits: Know Where You Fall

Investing is an essential form of making passive income, as you make your money work harder for you. The goal is to save up for retirement, which is why people tend to invest in a Roth IRA. But did you know that there are Roth IRA income limits?

Here is everything you need to know about the income limits and how to get around them.

What Is a Roth IRA?

A Roth IRA is a retirement account that utilizes post-taxed money for contributions. Compared to a traditional IRA, which uses pre-taxed money as its source.

By using a Roth IRA, come retirement time, you can withdraw this money tax-free without any penalties. A traditional IRA requires income tax to be taken out of this money, as it was contributed before any taxes were taken out.

There are penalties for removing the money early, however. If you choose to retire before the age of 59 and 1/2, you must pay a ten percent fee, depending on where you have your account set up. You will also be responsible to pay taxes on the capital gains once selling out of the investments.

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What Are the Roth IRA Income Limits?

As of 2021, you can only contribute to a Roth IRA if you make less than $198,000 annually for married couples. If you are single, you must be making less than $125,000 to fully contribute to it.

In 2021, you can contribute a maximum of $6,000 or 100% of your income, whichever is lesser. If you make less than $6,000, you can’t contribute more than whatever you made.

If you are over the age of 50, you do get an additional allowance to contribute, up to $7,000. This is a catch-up, which is for those that didn’t contribute earlier in life.

Can You Have More Than One Roth IRA?

Technically, you can have as many Roth IRAs as you would like, but this doesn’t skirt past the income limits or contribution limits. You can still only contribute $6,000 (or $7,000 if over 50) across all accounts. So it doesn’t make a lot of sense to have multiple Roth IRAs.

If you are married, you can both have Roth IRAs, as you are still two different people. But the rule still applies, you can only contribute the maximum limits, regardless of who contributes to whos.

If only one of you works, you can also set up a Spousal Roth IRA. This allows you to contribute to another Roth IRA in your spouse’s name. It is still technically two accounts though, so while you can contribute the full amount to each, you still have to abide by the Roth IRA limits.

Use These Tips to Maximize Your Contributions

Use the knowledge you now have about Roth IRA income limits to maximize your contributions. The earlier you start to contribute, the better your returns are expected to be. Your older self will thank you later.

If you want to learn more about the investing world and maximizing your investing potential, be sure to check out the rest of our blog. If you know someone that wants to learn more about opening a Roth IRA, be sure to share this article with them.