What are Roth IRA contribution limits 2023?

Summary 

How much are the 2023 Roth IRA contribution limits? 

One of the key aspects of a Roth IRA retirement account is that the contributions you make are after-tax, so there’s no tax break upfront. Another important aspect of these accounts that can help ease your tax worries after retiring is that there are limits on how much you can contribute each year.  

In 2023, you can contribute a maximum of $6,500 to a Roth IRA. If you are 50 or older, you can contribute up to $7,500 in 2023, making use of $1,000 in catch-up contributions.   

The Roth IRA contribution limits for 2023 are set to change in 2024. 

We’re here to help you gain a better understanding of IRS 2023 Roth IRA contributions limits and to put you in touch with a trusted financial advisor who can guide you through managing your IRA account.  

What are the rules for contributing to a Roth IRA? 

Roth IRA contribution limits for 2023 are not the only thing to take into consideration when you budget for your contributions to your retirement account. There are also a few rules you should pay attention to. 

Working with an SEC-regulated financial advisor can help you navigate the rules of a Roth IRA.  

With an expert’s guidance, you can look forward to less frustration, greater peace of mind, and boosted confidence when managing and contributing to your Roth IRA. Unbiased can help you find an experienced, regulated financial advisor you can trust. We will work with you to better understand your needs before matching you with the best person to assist you. 

Are you eligible for a Roth IRA? 

The prospect of tax-free withdrawals after retirement, as well as other benefits, make Roth IRA accounts an understandably popular choice. However, not everyone is eligible for a Roth IRA. 

Your eligibility for one of these accounts depends on a couple of factors. The main qualifying factor for Roth IRA eligibility is that you earn an income. As mentioned, your income helps to determine which Roth IRA contribution limits apply to you. 

You can earn eligible income in two different ways.  

The first is by working for someone else who pays you, and the second is to run your own business or farm. Military differential pay, untaxed combat pay, and taxed alimony also count as eligible income. Let’s take a closer look. 

You’re working for someone else 

You can earn eligible income for a Roth IRA by working for someone who pays you wages or a salary. Bonuses, commissions, taxable fringe benefits, and tips also count as eligible income. W-2 employees and 1099 contractors receive earned income. 

The Roth IRA rules allow you to contribute to another retirement plan through your employer or business. However, you should remember if your income exceeds the IRS 2023 Roth IRA contributions limits, your contributions might be limited. 

You can contribute to a traditional or Roth IRA even if you participate in another retirement plan through your employer or business. However, you may not be able to deduct all your traditional IRA contributions if you or your spouse participates in another retirement plan at work. Once again, your Roth IRA contributions might be limited if your income exceeds a certain level. 

You run your own business 

Many Americans who run their own business or farm or are freelancers and have healthy earnings are eligible to make Roth IRA contributions. One of the reasons for this is that your MAGI is likely to be much lower than that of another person in similar circumstances but who is employed by someone else. This means that you could easily fall within the Roth IRA contribution limits for 2023. 

Your potentially lower MAGI is due to the significant tax reductions for successful self-employed people. Some of these expenses include: 

These and other deductions are available to you if you are self-employed and are subtracted in calculating your MAGI. It’s entirely possible that you can earn a relatively high gross income from your business and still have a much lower MAGI. 

High income 

If your income is higher than the 2023 Roth IRA contribution limit, you cannot contribute to a Roth IRA. This is due to the significant tax benefits enjoyed by wealthy Americans. However, you can bypass the limit through a backdoor Roth IRA. 

This process would see you contribute money to a traditional IRA before converting the account to a Roth IRA. A mega backdoor Roth is another option if you have a 401(k), although this is a more involved process that could lead to you receiving tax bills.  

A responsible and experienced financial advisor can help you to understand your retirement options. 

What types of income don’t qualify for a Roth IRA? 

Some types of income do not qualify for Roth IRA eligibility and cannot be contributed. Some common income types that don’t qualify include: 

Passive income does not qualify for Roth IRA contributions as it’s regarded as unearned income. 

What is the Roth IRA 5-year rule? 

The Roth IRA 5-year rule is one of the most important factors to consider if you’re thinking about getting a Roth IRA.  

According to the rule, you cannot make tax-free withdrawals until at least five years after you made your first contribution. This rule applies to people of all age groups who contribute to a Roth IRA. 

How have Roth IRA rules changed over time? 

Roth IRA contribution limits aren’t the only aspects of Roth IRAs that continue to change over time. The rules have also changed several times in the past, and the future may bring more changes. 

One of the recent changes made to Roth IRA rules came via the Tax Cuts and Jobs Act of 2017. Prior to this change, if you converted a Simplified Employee Pension (SEP) IRA, traditional IRA, 401(k) plan, 403(b) plan, or other tax-advantaged account to a Roth IRA and then decided to change it back, you can do it with a recharacterization. The change to the rules means that such conversions made after October 15, 2018, cannot be recharacterized into the account’s original form. 

2022 also brought changes to Roth IRA rules, thanks to the Secure Act 2.0. The act was signed into law on December 29, 2022. The main changes that the act brought to Roth rules include: 

Roth IRA contribution limits also change over time, increasing year-on-year: 

Want to learn more about Roth IRA contribution limits in 2023? 

No matter your age, if you earn an eligible income through self-employment or working for someone else, your MAGI falls within the Roth IRA contributions limits in 2023; you can take advantage of one of these popular retirement accounts.  

There are a number of rules to navigate, and these rules can change from time to time. One of the most important rules to remember is the Roth IRA 5-year rule, which doesn’t permit tax-free withdrawals for at least five years after making your first Roth IRA contribution. 

Whether you’re thinking about opening a Roth IRA or you want to manage your existing retirement account more effectively, an SEC-regulated financial advisor can offer the guidance you need. Let Unbiased match you with a trustworthy financial advisor who’ll work with you to better understand your needs and provide you with advice and options that can help you achieve your goals. Get matched here.