The Ultimate Guide to Roth IRAs: Rules, Eligibility, and Contributions

MUW Team

// July 7, 2023

Financial education, Retirement accounts: IRAs and 401ks

Introduction

If you’re thinking about saving for retirement, a Roth IRA can be an excellent option. And if you’ve never contributed to a Roth IRA before, it may seem complicated at first. There are rules and eligibility requirements that make it difficult to understand who qualifies for these accounts and how much they can contribute each year. But don’t worry—we’ve got everything you need to know about Roth IRAs in one place! Once you understand how these accounts work, the only thing left is deciding whether or not this type of savings plan is right for your finances.

Roth IRAs are a powerful tool for your retirement.

Roth IRAs are a powerful tool for your retirement. If you’re not already saving for retirement, a Roth IRA is an excellent way to start. You can contribute up to $5,500 per year and receive tax-free growth on your investments (in addition to any investment earnings).

Roth IRAs are also known as tax-advantaged retirement accounts because they offer tax benefits that other types of investment accounts don’t provide: contributions made into a Roth account aren’t deductible from income taxes, but withdrawals in the future will be free from federal taxes (and possibly state taxes).

Roth IRAs come with rules and eligibility requirements.

A Roth IRA is a type of retirement account that allows you to save money for your golden years. You can use a Roth IRA to pay for the following:

Taxes on your investments
College tuition for yourself or your children

So, how do you open a Roth IRA? The process is fairly straightforward: You simply need to fill out an application form with the provider of your choice, who will then send it over to the IRS and other government agencies for approval. Once everything checks out and they’ve given their seal of approval (which takes about 30 days), then you’re ready to start contributing! Now let’s talk about some rules and eligibility requirements for these accounts…

You must be under the age of 70 1/2 to contribute to a Roth IRA.

To contribute to a Roth IRA, you must be under the age of 70 1/2. There are no income limits for contributing to a Roth IRA, so anyone who has earned income can contribute to one. You can also make contributions if you have other IRAs and even if your spouse has an employer-sponsored retirement plan (such as a 401(k)).

The maximum annual contribution to a Roth IRA is $5,500 for those under age of 50 and $6,500 for those who are 50 or older. If you earn more than that amount in a year, you can still make a full contribution; it just won’t be as much. For example, if you earn $9,000 in one year, then your contribution limit would be $6,500 ($5,500 plus half of the difference between your income and $10k).

A single person can make $122,000 and still qualify to contribute to a Roth IRA in 2019.

The income limit for single filers is $122,000 in 2019. This figure includes wages, self-employment income, and alimony payments (if you are divorced).

A married couple filing jointly can contribute to a Roth IRA if they have an AGI of up to $193,000 in 2019. If your spouse doesn’t work or earn any money on his/her own–for example, because he/she is disabled or stays home with children–you may be able to contribute if your combined AGI is less than $193,000.

If you file separately from your spouse and don’t live together at all during the year (e.g., because he/she moved out), then your maximum contribution will be zero dollars unless one of these two situations applies: 1) You were married but living apart due to divorce proceedings, or 2) Your spouse died during the year before filing for bankruptcy protection

Married couples filing jointly can make $193,000 and still qualify to contribute to a Roth IRA in 2019.

The maximum amount of income that a single person can have to contribute to a Roth IRA is $64,000. The maximum amount of income that a married couple filing jointly can have to contribute to a Roth IRA is $193,000 in 2019.

You can contribute up to the maximum limit of $6,000 in 2019. If you are 50 or older, you can contribute an additional $1,000 in catch-up contributions.

You can contribute to a Roth IRA if your income is below the limits. You cannot contribute more than the contribution limits, however. If you make too much money, you will have to subtract it from your contribution.

There are contribution limits on how much you can contribute each year.

There are contribution limits on how much you can contribute each year. The limit is based on your income and whether or not you’re covered by a retirement plan at work.

If you’re married and file jointly, your maximum Roth IRA contribution is the lesser of:

$5,500 per person ($6,000 if age 50 or older), or
Your taxable compensation for the year minus any allowable deductions (such as traditional IRA contributions).

If you’re married and file jointly with an adjusted gross income of $199,000 or more in 2018, your maximum Roth IRA contribution is reduced. If you’re single, head of household, or qualifying widow(er), the phaseout range for 2018 is $120,000 to $135,000 ($135,001-$203,000 if 50+).

Income limits determine which types of investment options you can choose from within your account.

Stock, bond, mutual fund, and exchange-traded fund investing are all viable options

You can invest in stocks or mutual funds (but not both). You can invest in stocks and bonds or in ETFs (but not all three).

Retirement planning is a great reason to open a Roth IRA.

The Roth IRA is one of the most effective tools available to individuals planning for retirement.

This type of account allows you to put money away and enjoy tax-free growth with no required minimum distributions during your lifetime.

The rules are simple: You must be under the age of 70 1/2 and have earned income (i.e., wages) to contribute to a Roth IRA, but once you’re eligible, there are no limits on how much you can contribute each year or when you can make withdrawals from it.

Conclusion

A Roth IRA is a retirement savings vehicle that provides tax benefits and flexibility

—especially if you are young and have decades until you retire.

It allows you to save money tax-free, and it has no required minimum distributions at the age of 70 1/2 or later. You can also withdraw your contributions without penalty at any time if needed. The only thing holding you back from opening one now is the ability to contribute, and that’s not something we can help with.