Underrated Hacks for Boosting Your Roth IRA Contributions in 2023
KEY POINTS
- You can fund your Roth IRA for 2023 until April 15, 2024.
- You may be able to contribute to a Roth IRA for your spouse, even if they didn't work.
- Kids are allowed to have Roth IRAs, as long as they have earned income.
A Roth IRA is one of the best wealth-building tools imaginable. You'll never get a tax break on your contributions, but you get tax-free growth on your investments and withdrawals in retirement. Given the stock market's history of producing jaw-dropping returns over long periods of time, a Roth IRA offers some of the most generous tax breaks imaginable.
Even though we're just two months into 2024, you still have time to give your Roth IRA a boost for the 2023 tax year. Follow these tips to make sure you're getting the most out of your Roth IRA.
Max out your Roth IRA before Tax Day
The deadline to fund your Roth IRA for any tax year isn't until Tax Day. In other words, you have until April 15, 2024 to max out your Roth IRA for 2023.
The 2023 contribution limit is $6,500, or $7,500 if you're 50 or older. For 2024, the limits increased to $7,000 and $8,000, respectively.
If you didn't max out your Roth IRA in 2023, consider making 2023 contributions before you contribute for 2024. Your brokerage will probably have an option to designate upcoming contributions for 2023 or 2024.
Now is also a great time to open a Roth IRA if you don't already have one. Even if you can't afford to make the maximum contribution, contribute what you can for 2023. After Tax Day, you can start investing for 2024.
Take advantage of catch-up contributions
As we noted earlier, the Roth IRA limits for both 2023 and 2024 are $1,000 higher if you're a taxpayer who's 50 or older. That's because once you reach 50, you're allowed to make extra catch-up contributions to most retirement accounts.
If you had at least 50 candles on your birthday cake in 2023, consider kicking in an extra $1,000 to your Roth IRA for 2023 before Tax Day. Then, make it your goal to save the $8,000 maximum for 2024.
Fund a spousal IRA
To fund a Roth IRA, you typically need earned income. Essentially, earned income is money you get from working, i.e., a salary, hourly wages, bonuses, or commissions. But there's an exception: If your spouse doesn't earn money from working, you can still fund a Roth IRA on their behalf, so long as you file a joint tax return, through an arrangement called a spousal IRA.
You can fund a spousal IRA up to the annual contribution limits, but you can't make IRA contributions that exceed your combined earned income for the year. For example, if your combined income for the year was $10,000, you'd only be able to contribute up to $10,000 between both of your IRAs.
Get your kid to open a Roth IRA
If your child works part time or earns income from activities like babysitting or mowing lawns, they're allowed to open a Roth IRA, as there's no minimum age. The hurdle for most minors is the requirement that you have earned income to open a retirement account. Minors also typically need an adult to serve as the account's custodian.
The annual contribution limits on a Roth IRA for kids are the same as for everyone else: $6,500 for 2023 and $7,000 in 2024, though if your income is less than the contribution limit, you can only contribute what you earned. So if your child earned $3,000 working last year, their maximum contribution is $3,000 for 2023.
There's no rule that says they actually have to be the one making the contribution, though. Going back to the example above, if your child earned $3,000 last year, you could contribute up to $3,000 to their Roth IRA. Or if you want to get them in the habit of saving for retirement early, you could offer to match part of their contributions. For example, you could offer them a dollar-for-dollar match of up to $1,500.
Should maxing out a Roth IRA be a top priority?
Before you max out your Roth IRA, aim to pay off high-interest debt, like credit cards. You also want to have an emergency fund that could cover you for at least three to six months. If you have a 401(k) plan or another employer-sponsored retirement account, getting any matching funds there takes precedence over funding a Roth IRA, since it's free money from your employer.
After you've hit those three goals, maxing out your Roth IRA is a laudable goal. But even if you can't make the maximum contribution, save what you can, knowing that the tax-free income will pay off later on.
Our Research Expert
Robin Hartill, CFP®, is Motley Fool Money’s Head of Product Ratings and has worked for The Motley Fool since 2020. Her work has appeared in various national publications, including NerdWallet and CNET Money. She previously wrote The Penny Hoarder’s syndicated “Dear Penny” personal finance advice column. She is based in St. Petersburg, Florida.
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