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Maximize Your Retirement Savings: IRA Contribution Limits and More for 2024
Contributing to an individual retirement account (IRA) is a fantastic way to build your nest egg and secure valuable tax perks. However, like 401(k) or other workplace retirement accounts, there are contribution limits and income considerations to keep in mind. Understanding these rules can help you get the most out of your IRA and stay compliant with IRS regulations.
IRA Contribution Limits for 2024
If you have an IRA, you can contribute up to the annual limit or the equivalent of your earned income, whichever is lower. There are two main types of IRAs:
- Traditional IRAs: Contributions may be tax-deductible, reducing your taxable income. Your money grows on a tax-deferred basis, meaning you won’t pay taxes until you make withdrawals in retirement. Early withdrawals before age 59½ may incur a 10% penalty and be taxed as income. Required minimum distributions (RMDs) start at age 73.
- Roth IRAs: Funded with post-tax money, allowing you to withdraw contributions tax- and penalty-free at any time. Investment earnings can also be withdrawn tax-free if you’re at least 59½ and have had the account for five years or more. RMDs do not apply to Roth IRAs unless it’s an inherited account.
Below are the contribution limits for 2024:
| Age | Maximum Contribution to All IRAs |
|---|---|
| Under 50 | $7,000 |
| 50 and older | $8,000 |
IRA Income Limits for 2024
While there are no income limits for traditional IRAs, Roth IRAs have specific income thresholds. As your income increases, the amount you can contribute may decrease. Here are the Roth IRA income limits for 2024:
| Tax Filing Status | Can I Contribute the Maximum Amount? | When Are Contributions Reduced? | When Can I No Longer Contribute to a Roth IRA? |
|---|---|---|---|
| Single, head of household, or married filing separately (and you didn’t live with your spouse at any point during 2024) | Yes, if your income is less than $146,000 | When your income is $146,000 to $160,999 | When your income is $161,000+ |
| Married filing jointly or qualified widow(er) | Yes, if your income is less than $230,000 | $230,000 to $239,999 | $240,000+ |
| Married filing separately | No | $1 to $9,999 | $10,000+ |
Traditional IRA Deduction Limits for 2024
Traditional IRA contributions are tax-deductible if you and your spouse aren’t covered by a workplace retirement plan. If either of you are, the deduction begins to phase out based on your tax filing status and modified adjusted gross income. Here are the deduction limits for 2024:
| Tax Filing Status | Can I Take the Full Tax Deduction? | When Is the Deduction Reduced? | When Can I No Longer Take the Deduction? |
|---|---|---|---|
| Single or head of household and covered by a workplace retirement plan | Yes, if your income is $77,000 or less | When your income is $77,001 to $86,999 | When your income is $87,000+ |
| Married filing jointly and you are covered by a workplace retirement plan | Yes, if your income is $123,000 or less | $123,001 to $142,999 | $143,000+ |
| Married filing jointly and your spouse is covered by a workplace retirement plan | Yes, if your income is $230,000 or less | $230,001 to $239,999 | $240,000+ |
| Married filing separately and you are covered by a workplace retirement plan | No | Less than $10,000 | $10,000+ |
What Happens if You Contribute Too Much to an IRA?
Overfunding your IRAs could result in a 6% penalty for every year the money remains in your account. However, you can avoid this penalty if you catch the mistake early and fix it before the April tax filing deadline. You can either:
- Remove your excess contributions, plus earnings (removing money from a traditional IRA may result in a tax bill and a 10% early withdrawal penalty)
- Reassign your excess contributions to the following year
If tax day has passed, you can file an amended tax return before October 15. Just be sure to report any earnings you’ve made. If you wait until after the October deadline, you can expect to be penalized.
The Bottom Line
Understanding IRA contribution rules can help you maximize your retirement savings and enjoy some tax benefits along the way. These guidelines also let you know how much you can contribute without being penalized. You can use 401(k)s and IRAs together to build a strong nest egg. Self-employed retirement plans can be another helpful resource if you work for yourself.
For any mortgage service needs, contact O1ne Mortgage at 213-732-3074. Our team of experts is here to help you navigate the complexities of mortgage financing and secure the best possible terms for your home loan.
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