Interested in contributing to a Roth IRA? The limits have increased for 2019. Here’s what you need to know about Roth IRA limits.
Among the most popular individual retirement account (IRA) types is the Roth IRA. Roth contributions are made with after-tax dollars, but any earnings grow tax free, which can be attractive to some investors. And when you have a Roth plan, you don’t have to worry about taking required minimum distributions (RMDs) later on.
But even though a Roth IRA can have advantages, there are limits and eligibility rules investors need to understand. These include a limit on how much individuals can contribute to a Roth account each year, as well as income limits that restrict who’s allowed to contribute in the first place.
Here’s what you need to know about the Roth IRA limits for 2019.
For 2019, it’s possible to contribute up to $6,000 in a Roth IRA. (This is an increase from the 2018 limit of $5,500.) If you’re 50 or older, you can make a catch-up contribution of an additional $1,000 during the year, bringing your limit to $7,000.
It’s important to note that contribution limits apply across IRAs. So if you have a traditional IRA as well as a Roth IRA, the total you contribute to both accounts must not exceed the limit.
Each year, the IRS determines if inflation and other factors have created an economic situation in which contributors should be able to add more to their accounts. The goal is to provide a way for savers to increase how much they set aside for retirement in a tax-advantaged account.
Roth IRA limits aren’t just about contributions; you also have to adhere to income limits. Higher-income investors may not be eligible to contribute to a Roth account. Here are the income limits for 2019:
If your spouse doesn’t work, it’s possible to make contributions on his or her behalf—even if your spouse has no earned income. The contribution limits are the same, so you can make a $6,000 contribution to your own Roth IRA plus a $6,000 contribution to your spouse’s IRA. Understand, though, that the money becomes theirs. Roth IRAs are individual accounts, so there are no joint account choices.
You can also make contributions to a minor’s Roth IRA. You need to set up a custodial IRA to make this work, and your child must have earned wages. You can contribute up to the limit or your child’s annual income, whichever is lower. So if your child earns only $4,000 during the year, that’s the maximum that can be contributed to the Roth IRA.
These contributions can be helpful to your loved ones, empowering them to begin building a nest egg when they wouldn’t be able to otherwise.
Realize that Roth limits are watched carefully. If you don’t follow the limits, the IRS will assess a 6% excise tax on the extra amount each year it remains in your account. This applies if you violate the income limits as well. So if you shouldn’t have contributed money to the account because of your income level, you’ll be assessed a 6% tax on the amount you did contribute each year until you withdraw the money.
After you catch your mistake, withdraw the extra money—along with its earnings—from your account as soon as possible. If you do this before you file your taxes, you can avoid the 6% tax. You also won’t have to pay any additional taxes or penalties on the contribution amount. But any earnings that resulted from your excess contributions might be taxed at your federal rate, and if you’re not 59 1/2, you might be responsible for a 10% penalty on the earnings.
How much do you need to save to reach your retirement savings goal? Find out by answering a few questions.
If you realize the mistake after filing your taxes, you might have to withdraw the excess from your Roth IRA and file an amended return, or figure out another approach to address the problem. A knowledgeable tax professional can help you determine how best to reduce the impact of a mistake.
Whether or not you should contribute to a Roth account depends on your current financial situation, your expected tax rate during your retirement years, and the goals you want to pursue. Carefully determine whether you qualify based on current Roth IRA limits, then decide if it makes sense for your situation. A financial consultant can help you create a plan designed to help you pursue your long-term financial goals, whether you use a Roth or some other vehicle.
for thinkMoney ®
Financial Communications Society 2016
for Ticker Tape
Content Marketing Awards 2016
Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.
Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.
TD Ameritrade does not provide tax advice. We suggest you consult with a tax-planning professional with regard to your personal circumstances.
Maximum contribution limits cannot be exceeded. Contribution limits provided are based on federal law as stated in the Internal Revenue Code. Applicable state law may be different. TD Ameritrade does not provide legal or tax advice. Please consult your legal or tax advisor before contributing to your IRA.
Market volatility, volume, and system availability may delay account access and trade executions.
Past performance of a security or strategy does not guarantee future results or success.
Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.
Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.
This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.
TD Ameritrade, Inc., member FINRA/SIPC, and a subsidiary of TD Ameritrade Holding Corporation. TD Ameritrade Holding Corporation is a wholly owned subsidiary of the Charles Schwab Corporation. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2020 Charles Schwab & Co., Inc. Member SIPC.