Are you maxing out your retirement accounts every year? Do you know what the limits are for your retirement contributions? If your answer to either of these questions is no, then this article is for you.
If you’re looking for the best retirement strategy for a 50-year-old or other similar age group, here’s a suggestion: consider maxing out your retirement accounts every year. This strategy isn’t for everyone, and it assumes you have excess money to invest. But if you do have that excess money, then building up your retirement accounts may be a good idea. Here’s why: Retirement accounts are tax-advantaged, meaning you can get preferential tax treatment on your gains if you play your cards right. Sometimes, you’ll want to defer taxes to a later time period; other times, you’ll want to pay taxes now so you can save on them later.[1]
One of the first steps to playing your cards right is knowing the contribution limits to your accounts. Here are the yearly limits for each account. Keep in mind these limits reset every year on January 1st. [2]
Roth IRA contribution limits in 2024
If you have a Roth IRA, the contribution limit is $7,000 in 2024.[2]
One important note: the retirement strategy of a 55-year-old is different from the retirement strategy of a 40-year-old. Here’s why: Starting at age 50, you can make what are called “catch-up contributions” to your retirement accounts. Essentially, you can contribute more money yearly to your account than other people can once you reach 50 years of age.[3] For Roth IRAs, the catch-up contribution amount is an extra $1,000. This brings your total yearly contribution limit up to $8,000.[2]
There are income restrictions on this kind of account that may reduce your contribution limit. If you make less than $230,000 as a married couple, you can make full contributions. If you make between $230,000 and $240,000, then your contribution limit will be reduced. And if you make more than $240,000 a year, you cannot contribute at all to a Roth IRA.[2]
Traditional IRA contribution limits in 2024
For a traditional IRA, the contribution limit to your IRA for 2024 is $7,000. Traditional IRAs also allow for $1,000 worth of catch-up contributions. This brings the yearly limit for traditional IRAs up to $8,000 for those 50 years old or older.[2]
However, there are various rules that can limit your ability to contribute to a traditional IRA. If you are married and neither you nor your spouse has another retirement plan, you don’t have to worry: your contributions will not be limited. If you or your spouse have other retirement plans, though, your contributions may be limited based on your annual income.[2]
What now?
Understanding the best contribution strategy requires a complete understanding of your financial picture. If you are looking for someone to help you put together that complete picture and offer advice tailored to your situation, consider reaching out to one of our professionals today for a complimentary review of your financial circumstances.
