The Roth Individual Retirement Account (IRA) has always been an attractive option for many investors due to its tax-free withdrawals in retirement. However, not everyone can contribute to a Roth IRA. The IRS places income limits on who can contribute and how much they can contribute based on their Modified Adjusted Gross Income (MAGI). As we step into 2023, it’s essential to stay updated with these numbers.
Here’s a breakdown of the income thresholds for Roth IRA contributions in 2023:
1. Single Filers, Head of Household, or Married Filing Separately (if not living with spouse at any time during the year):
- Full Contribution: If your MAGI is less than $138,000.
- Partial Contribution: If your MAGI is greater than $138,000 and less than $153,000.
- No Contribution: If your MAGI exceeds $153,000.
2. Married Filing Jointly or Qualifying Widow(er):
- Full Contribution: If your MAGI is less than $218,000.
- Partial Contribution: If your MAGI is greater than $218,000 and less than $228,000.
- No Contribution: If your MAGI exceeds $228,000.
3. Married Filing Separately (if living with spouse at any time during the year):
- Partial Contribution: Up to a MAGI of $10,000.
- No Contribution: If your MAGI exceeds $10,000.
Why These Limits Matter
Understanding where you fall in these categories is crucial for several reasons:
- Avoiding Penalties: Over-contributing to a Roth IRA can lead to hefty penalties.
- Maximizing Benefits: Knowing your contribution limit ensures you are maximizing the benefits offered by a Roth IRA.
- Tax Planning: Understanding your eligibility can be a pivotal part of your broader tax strategy.
The Roth IRA continues to be a significant tool for retirement planning, offering unique tax advantages that can make a big difference in retirement. As you plan your contributions for 2023, ensure you’re familiar with these income thresholds to make the most of this savings option. If you’re ever in doubt, consider consulting a tax professional to guide you through the intricacies of Roth IRA contributions and to stay compliant with IRS regulations.
If you have questions, contact Paragon today!