Funding an IRA (Updated for 2024!)
It’s April 12th… is your IRA maxed out for this tax year?
Individual Retirement Accounts (IRAs) can be fully funded until April 15th this year. Individual investors can contribute up to $6,500 to their IRA this year ($7,500 if they are 50+)! Read on below for details about the coming year and answers to some IRA questions you may have!
IRA Changes for 2024
For the 2024 tax year, individuals are permitted to contribute $500 more to their IRA-
Under 50 years old: $7,000 (↑$500)
Over 50 years old: $8,000 (↑$500)
With IRAs come income limitations. Income limitations for contributing to a Traditional IRA and a Roth IRA can vary based on your tax filing status and modified adjusted gross income (MAGI).
Single Filers Full Contribution Limit: Less than $146,000 (↑$8,000)
Single Filers Ineligibility Limit: Greater than $161,000
Filing Jointly Full Contribution Limit: Less than $230,000 (↑$12,000)
Filing Jointly Ineligibility Limit: Greater than $240,000
What is an IRA?
An Individual Retirement Account (IRA) is a tax-advantaged investment account designed to help individuals save for retirement. Unlike a typical savings account, an IRA allows you to invest in a variety of financial assets, such as stocks, bonds, mutual funds, and more. The primary benefit of an IRA is its tax advantages, which can help your retirement savings grow more efficiently over time.
Types of IRAs
There are several types of IRAs, each with its own set of rules and benefits. The two most common types are Traditional IRAs and Roth IRAs.
Traditional IRA: With a Traditional IRA, your contributions may be tax-deductible, meaning you can deduct them from your taxable income in the year you make them. Your investments grow tax-deferred until you withdraw them in retirement, at which point they are taxed as ordinary income.
Roth IRA: Roth IRAs offer a different tax advantage. While contributions to a Roth IRA are made with after-tax dollars and are not tax-deductible, qualified withdrawals, including both contributions and earnings, are tax-free in retirement. Additionally, Roth IRAs offer more flexibility in terms of withdrawals, as you can typically withdraw your contributions (but not earnings) at any time without penalty.
Who can contribute to an IRA?
Most individuals can contribute to an IRA as long as they have earned income (such as wages or self-employment income). However, there are income limits and other eligibility criteria that may affect your ability to contribute to certain types of IRAs. It's essential to consult with a financial advisor or tax professional to determine your eligibility and contribution limits.
Why open an IRA?
Opening an IRA can offer several benefits:
Tax Advantages: Both Traditional and Roth IRAs offer tax benefits that can help your retirement savings grow more effectively over time.
Investment Options: IRAs typically offer a wide range of investment options, allowing you to tailor your portfolio to your risk tolerance and investment goals.
Flexibility: Depending on the type of IRA you choose, you may have flexibility in terms of contributions, withdrawals, and estate planning.
Supplement to Employer-Sponsored Plans: If you have access to an employer-sponsored retirement plan (such as a 401(k)), an IRA can complement your savings strategy and provide additional tax advantages.
