10 IRA Contribution Rules You Must Know
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- Опубліковано 2 чер 2024
- The rules of IRA contributions can be confusing. Get them wrong and you could make a costly mistake or lose out on a chance to save more for retirement. In this video we'll cover these 10 IRA contribution rules:
1. Contributions limits
2. Catch-up contribution limits
3. Income limitations on IRA contributions
4. Limits on deducting IRA contributions
5. Roth IRA contribution income limits
6. Age limits on IRA or Roth IRA contributions
7. Spousal IRA
8. Contributing to both a 401(k) AND an IRA
9. What if you contribute too much?
10. 2021 contribution deadline
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While still working as a trial attorney in the securities field, I started writing about personal finance and investing In 2007. In 2013 I started the Doughroller Money Podcast, which has been downloaded millions of times. Today I'm the Deputy Editor of Forbes Advisor, managing a growing team of editors and writers that produce content to help readers make the most of their money.
I'm also the author of Retire Before Mom and Dad--The Simple Numbers Behind a Lifetime of Financial Freedom (amzn.to/3by10EE)
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Another VERY important IRA topic to note (especially for higher income earners) is the IRS' "pro rata rule". This can really bite you when you go to do a Roth conversion and provides a strong argument for not rolling old traditional 401(k) assets into a traditional IRA if you leverage the "backdoor" Roth IRA.
New subscriber because you present the material in such ca clear concise manner.
Thank you Ron! You are amazing and I love your videos.
Hey Rob: thanks for the video, I am a big fan of your work. What do you think will happen with the backdoor and megabackdoor Roth IRA conversions/rollovers? Do you think they will no longer be allowed? A video explaining what they are and where you see we are gonna get to this year would be very enlightening! Thank you very much!
Rob, can you do a video on how to calculate your MAGI with respect to the ability to contribute to Roth IRAs? The IRS.gov worksheet is very confusing and I'm not sure what I should do for 2022 and if I need to back out 2021.
Hey Rob! Thanks so much for this great content :) i just have a question, how different is 401k than traditional IRA? Thanks in advance
When determining MAGI for Roth contribution limit, do social security, retirement income, and capital gains count? Do any of them depend on age?
Thanks for the info. Did I understand correctly that no matter how old a person is , if they have earned income they can continue to contribute to a traditional ira?
Ooops, I just heard your answer. Thanks
Rob, thanks for the informative video. I'm trying to find out if I can still contribute to my Roth IRA if I receive military retirement pay. This income is taxed every month. Thanks!
Do you or your spouse have earned income (a job)?
Thank you for the helpful videos and informative weekly email. If contributions to a traditional IRA are non deductible, what is the primary value to it versus contributing instead to a regular brokerage account?
They are deductable. They are tax deferred, so if you earn exactly 6k, you can contribute that entire 6k without paying any taxes on it until you withdraw it. It's exactly like a mini 401k, but without employer matches or restricted investment choices.
Edit: the deduction for a traditional IRA is limited if you already have a workplace retirement plan (401k, etc.), But you can deduct the full amount if you don't have any workplace plan.
And you can roll it over to a Roth
If you have a Traditional IRA for five years and than you decide to open a Roth IRA. Does the five year rule transfer from the Traditional IRA to the Roth IRA? Or does the five year clock starts agan? Thanks
Hi Rob. Great Video. I made a mistake earlier and contributed more to Roth IRA and subsequently paid penalty. One thing that you did not cover precisely is: (a) If you and your spouse both have work place retirement plan (401K) and (b) make too much money (according to IRS), but (c) within the phase-out range of $109,000, can both spouses contribute to IRA ?
Well you can certainly contribute. The question is how much will be deductible.
A Roth IRA question. Is there any employer sponsored retirement plan that would disqualify a person from opening a Roth IRA? Old fashion pension or teacher retirement
Hi Rob my understanding is that in order to contribute to IRA it has to be an earned income (i.e. paycheck from employer or job) not taxable compensation (i.e. dividend, realized short/long term gain from investment...). Am I wrong on this? Can you clarify?
Yes it has to be earned income.
When is the contribution deadline for a SEP IRA for Schedule C income? Assume an extension has been filed by the individual and they are entitled to file their return by October 15 of the given year. Since they won't know the amount of net income on their Schedule C until their return is prepared, don't they have until they file their return to make the SEP IRA contribution? In other words, you don't know on April 15th what net income you will have, so you wait until that is calculated. Correct?
Hello Rob, when contributing to a Roth I have heard when or if able to max out your contributions it should be done sometime in the first half of the calendar year for best overall returns/growth.Curious if you may know why. Thanks for your informative videos.
Based on assumption that there are more years where the stock market rises as opposes to declines, so that for any given year the share price is lower in Jan than it is in Dec. If you can afford to do so lump sum $6,000 in Jan since you are DCA with your 401(k) anyway.
My take is just Time in the market. All of your money is being invested by the 6mo mark vs only half of the total investment for the year
Do you have a video on custodial IRA…for our kids?
Do you recommend dollar cost averaging Roth IRA contributions over the course of the year, or putting in the full 6k and investing it all at the beginning of the year?
If you can afford to do so may just as well contribute $6,000 in January every year. You "dca" in your 401(k).
I love your vids.. I know u own Berkshire but why do u own Apple and more so Bank of America seeing that Berkshire owns lots of there shares?
For Apple, I bought before Berkshire did. As for BofA, I thought it was a solid investment. But there's certainly some overlap.
On the IRS website they use the term taxable compensation. is that the gross amount a person is paid (that is taxable)? if so, does that mean to max out a spousal account one person would need to make at least 12k of taxable income?
Q1 Yes gross income
Q2 $6,000 if IRA only for spouse and not for yourself. $12,000 if plan to contribute for both of you.
Also. If im 39 years old should i do the roth tsp only? or is it too late for any benefit?
Question 1: I maxed out my roth for 2021 in December. If I were to add more money on January will it be under 2022? Or would I be overcontributing to the 2021 year since I added more money before April 15th 2022.
Question 2: Do reinvested dividends count as personal contribution? Meaning, if I added $100 of reinvested dividends into my roth can I still add $6,000? Or $5,900?
Thanks!
Q1 If you contribute to Jan 2022 your IRA, the IRA custodian should already know that you've maxed out your 2021 IRA so you will only be able to contribute to your 2022 IRA. If you had not maxed out your 2021 IRA, you will have an option to contribute to either 2021or 2022. If your 2022 IRA custodian is different than your 2021 IRA custodian they will not know that you've already maxed out your 2021 IRA and will give you an option for both.
Q2 No.
If I have a SEP IRA, but no other IRA, and under the Roth limit for AGI. Can my wife and I contribute to a Roth?
Just opened a roth, I am contributing small income from ebay sales now as I have been unemployed since September of 22, it's January now, can I now contribute 6k for 22 year even though I am only self employed and earning with eBay sales now? Thanks for the clarification in advance!
If u r max contributing to ur Roth IRA and are receiving dividends, can u reinvest or will that trigger a penalty for going over 6k?
Growth or reinvesting dividends does not trigger a penalty.
Thank you.. May I ask a few questions? I'm 68 and have been working for my current employer 24 years. It has never matched any employee contributions to our 401K. Furthermore, the 401K was so poorly managed, it was hemorrhaging money. So to protect my investment from further decline, last year I rolled most of the money into my IRA. My IRA has been funded primarily by yearly contributions from my savings accounts. (And deducted from my federal taxes.) The 401K rollover was pre-tax money, whereas the money I drew out of the bank to fund the IRA had already been taxed. Is the co-mingling of these monies a problem? I haven't taken any distributions from the IRA yet. But isn't the money that was contributed yearly from my bank account, going to be taxed a SECOND TIME when I take distributions from it? Or am I looking at this all wrong?
By taking a tax deduction you've made your IRA contributions pre-tax. Your 401(k) and IRA are both pre-tax. As per your description your traditional IRA is not going to be taxed a second time.
@@alrocky Thanks. Logical.
If I make a catch-up contribution now and then file my taxes before the deadline in April should the contribution be filed in my 2021 taxes or next year filing ?
Regarding *Roth* IRA or *traditional* IRA?
What happens if you contributed your 2021 post tax dollars after April 15? Like in May? 😬
Love your videoes. So helpful! Thank you!
Your IRA custodian should classify May contributions toward your 2022
I had been contributing to an after tax 401k for a number of years and recently rolled that in to my Roth IRA. I understand that I will have to pay tax on any gains I made while it was in my after tax 401k. My question is how do I figure how much of that was gains? Thanks for the help in advance.
what I understand is that if you put money into an after tax account you don’t pay taxes . If your employer did some salary matching contribution I think you pay taxes only in that amount
Can I max out 401k account $22500 and Roth IRA $6500? or both contributions should not be more than $22500?
Rob if I contribute lets say $4,000 how much money would i get back and in what period of time. I'm approaching senior citizen status and never really thought about stuff, since i picture myself living the Bohemian in a tropical place living off the sea and eating coconuts and mangos and other wild fruits. But in all seriousness brake down about how one can get back from $4,000. Thinking about buying a trailer when i retired and moving to Lancaster CA. and living next to an Okie
If I am earning more than 6% a year in my Roth IRA, should I just pay the penalty and keep it in there?
IRS/Congress needs to make this stuff simple enough for a 9th grader to understand - no need to have a CPA/Accounting Finance degree to have an IRA
Uhm…the contribution limit rules are pretty simple. You don’t need a CPA certification to understand it.
If I make a contribution to a traditional IRA, for the previous year in order to lower my tax burden for that year, how soon must I allocate those contribution funds?
there is no time limit for how soon you must move the money from the money market/settlement fund to your investment choices
I am retired. I had a small Robinhood brokerage account. 1k. I withdrew the $ and rolled it into one of Robinhood's IRA's. I do not work though. Just SS & 401's+IRA'S . Well, since I don't work.. I should not have done so.
Can you suggest a way to fix it? I did it in November 2023. Thank You.
Rob what are the limits to contributing to a minor with a Custodial Roth IRA?
Contribution limit of the lesser of $6,000 and how much *"earned income"* the minor made through their job.
Contributions to roth IRA are not deductible right? Then why they have put threshold limits for roth IRA contributions??
I have a SEP and I don't have a regular IRA even thoughI am self employed and I get a W2. I found I was going to owe $4000 in taxes and my SEP DOES NOT seem to effect the taxability but if I have a regular IRA it seems I can contribute and reduce my taxability. My return is due on an October extension. However, I have not set up a simple IRA. Can I set one up now (April 2022) and contribute back for 2021 even though I did not set one up before?
Deadline to contribute to [last year's] IRA is tax filing date typically April 15.
Hi Rob, if I currently contribute to a Roth, but marry someone who makes a lot more money than I do… I can no longer contribute to my Roth?
You may contribute via *back door* Roth IRA process.
If my money is untaxed can I contribute to a Roth ? I have history of getting taxed but not all my money is taxed . I could just use the taxes money right?
Do you have earned income [a job] or does your spouse have earned income?
@@alrocky yea but I wasn’t getting taxed. I figured things out thank you for your response though I appreciate it. Maybe one day I’ll be married
Hi Rob: @Rob Berger
Thanks for the video and I have a question regarding to item 8. I have 401k at work with 50/50 for pretax and Roth 401k. The 401k at work is maxed out at 19,500 limit for 2021. This is not included the match yet. I recently opened Roth IRA with Vanguard and contributed 6000 dollars for 2021 (note that my total income is less than 204,000 for married jointly income). Is it legally to max out both 401k (that has roth) and Roth IRA limit? Thanks.
Yes, you can contribute 19,500 to a Roth 401k and 6,000 to a Roth IRA. You can max out both. I've done this for several years.
There is no income limit prohibiting you from contributing to 401(k). A *$204,000* income MFJ prevents you from contributing *_full_* $6,000. If your magi is less than *$198,000* you may contribute $6,000 to 2021 Roth IRA.
@@alrocky Yep. And if you're income is over 204k for MFJ, you can potentially do a back door Roth.
@@UA-camFabLifeOfJan1 You may contribute [$20,500 + $6,500 =] *$27,000* to your Roth 401(k) and $7,000 to your Roth IRA. If 51+ you may still contribute $7,000 to your *2021* Roth IRA.
So if a person was to inherit a couple million dollars and no longer needed to work they cant contribute to any IRA because they no longer have income received by working???..is there a loophole to this rule?
Loophole - make your spouse work so you can contribute to an IRA.
I guess you could create a business and pay yourself W-2 wages, although I'm not sure how legal it would be, plus you'd have to pay income tax, although it would be 0 or not much if you only paid yourself $6k. The IRS might figure out that it's not a real job so I don't think I'd try it. Long term capital gains are taxed at a much lower rate, so if you inherit millions and have to pay some tax, no big deal.
You inherited a couple million AND you decided you didn't want to work anymore. You do not need to contribute to a Roth IRA. You already have all the money you need
Im still confused. I have a tsp i contribute to the regular tsp 15% of my bi weekly pay with a 5% match
If i were to open an ira outside of work how is that taxed? Isnt it already taxed from my pay? And then i go ahead and get taxed again when i take it out at retirement? Or on my taxes i have to manually deduct the amunt i contributed to the ira in my fidelity acct.
Are you asking about tax regarding traditional IRA or Roth IRA?
@@alrocky lol I don’t know what I was asking it’s very confusing. I think I was asking a question I understand now. Although I have another question. When you contribute money to a Roth I read somewhere that it has to be funded by your income? Like if I sell my house and it’s tax free money, cause I lived in the house for 5 years, can I then start funding a Roth with that money? Or no cause it was never taxed
@@Rossdink You or your spouse need earned income (a job) to qualify to contribute to traditional/Roth IRA.
@@alrocky yes but can you put money from the sale of a home into a Roth or Ira
@@Rossdink You can use the money from sale of home but you still need earned income (a job) to qualify for traditional/Roth IRA. Say 18 year old makes $6,500 this year but spends all of it. Parent of that teenager can supply $6,500 to fund their Roth IRA.
So you can only have one IRA and at age fifty or older you can put $7,000.00 in a year and that’s it! I’m not sure 🤔 that is much of a catch up for those of us starting late.
You may have as many IRA accounts as you want however you are limited to maximum contribution of [IRA1+IRA2+ ... =] $7,000 for the year. Contributing to Roth IRA is effectively catching up a little more than to traditional IRA. If you have 401(k) you should contribute to that.
You can also open a brokerage account and invest in ETF's.
No contribution limits. Invest as much as you want. But you will pay capital gains tax.
Hi Rob, great video as always! I recently joined a company that offers both Roth and Pre tax options in their 401k. Do you have any recommendations on how to allocate contributions? I conservatively set mine up to 50/50 in each because I wasn't sure how to anticipate future tax brackets.
Favor contributing to Roth 401(k) when you're in relatively low tax bracket and favor contributing to traditional 401(k) when you're in relatively high tax bracket. If in 12% Federal Tax Bracket (under $41,775 Single) consider Roth 401(k).
Your in a great position to max out the pre tax option and then take your tax savings and invest that into an after tax brokerage or a roth account (if applicable)
@@sergiosantana4658 That is incorrect as you *_cannot_* take the "tax savings" from contributing to traditional 401(k) and invest that into an after tax brokerage or a Roth account". The "tax savings" resides *_in_* the traditional 401(k) and is not available to invest outside that traditional 401(k).
@@alrocky I think there is a tax savings that's not in the 401k. You're right that the pre-tax income is stuck in the 401k, but it does reduce your taxable income and thus taxes. Say for instance you put $10k into the 401k pre-tax and your marignal rate is 22%, you would save the $2200 that the $10k would have been taxed.
I did this a few years ago when I didn't know what to do. One thing I found out later is that your employer match is tax deferred (basically non-roth). So if you contribute 50/50 it's not actually 50/50.
Say your employer matches 4% and you've decided to do 6% roth and 6% traditional. You actually end up with 10% traditional and 6% roth, so to actually get 50/50 you'd want to do 8% roth and 4% traditional.
In my case I wish I had done all Roth, because my old 401k from my job that I had in 2012-2016 is all traditional, roth wasn't offered. So I'm currently heavy in traditional 401k assets. I want my portfolio to be around 50/50 for tax diversification.
Tom Brady is 44 ...
👍
Can I help my three year son open a custodial ira account and help him contribute $599 every year . Is this legit?
Person needs earned income (a job) to qualify for IRA.
Hi Rob! Thanks for all the content. I've genuinely learned a lot. I have an aggressive index fund portfolio for my Roth IRA account. Are you or anyone else in this comment section willing to offer opinions on the following portfolio (21 years old):
40% SWPPX
15% QQQM
17.5% VO
17.5% VBR
7% VXUS
3% VNQ
Thanks again!
Wow complicated, just try 100% in VTI or VT and be done.
@@robn.5932 Haha that sounds like a great idea as well! But my thesis was to marginally beat the market (I realize it is not likely to do it by a wide margin over a long period) by integrating higher concentrations of small-cap and mid-cap since I have such a long time horizon.
@@anonymous32244 Are you also being aggressive by contributing $6,000 year?
0.02% er Schwab® S&P 500 Index SWPPX
0.15% er Invesco NASDAQ 100 ETF QQQM
0.04% er Vanguard Mid-Cap ETF VO
0.07% er Vanguard Small-Cap Value ETF VBR
0.08% er Vanguard Total International Stock ETF VXUS
0.12% er Vanguard Real Estate ETF VNQ
@@alrocky Hey! Yes I maxed out my contributions for 2021. And I am going to dollar-cost-average across 2022 by contributing $500/month.
And I see you noted the expense ratios. I believe the weighted average expense ratio across my Roth portfolio (after putting it into Personal Capital) is 0.06%.
Do you have any input on the portfolio as a 35-45 year investment?
@@anonymous32244 You can not beat the market consistently. Best to just put money in, remember its time in the market not timing the market that wins. Take it from someone who retired at 48.
catch me if you can, IRS
Hi Rob / anyone that can please provide input. About 2 weeks ago, I tried to set up a backdoor Roth IRA for the year 2021. However, I discovered that I can contribute but CANNOT convert to Roth IRA from a traditional IRA for 2021 at this point in the year. The contribution/conversion has to happen in 2021 itself. My question is, can I transfer back the money I contributed to my Traditional IRA without any tax impact or issues? It has accrued about 3 pennies so far. I also just submitted my taxes for 2021 today. I would greatly appreciate anyones insight/input into this issue. Thanks in advance.
What is your *source* that says you cannot convert your traditional IRA to Roth IRA and what was the rationale for why you cannot?
My financial advisor recently scolded me for contributing to a traditional IRA after maxing out my Roth 401K. He said my income level is too high go get a tax benefit in the IRA contribution. His recommendation was to invest the money I had earmarked for an IRA to a regular brokerage account so that the money is more portable prior to and during retirement. Just to be careful to tax loss harvest if possible to minimize my tax bill. I did see multiple articles on the internet explaining why contributing to an IRA without a tax benefit is not good if your income level is too high. Curious to see what others have seen?
Your _financial advisor_ should have recommended you contributed to *_back door_* Roth IRA. Doing so better next step over taxable brokerage account.
Does "taxable compensation" include capital gains from stocks, options, etc, and, if "yes", is it tax deductable??? I can't seem to find a straight answer to this anywhere.
No.