Image source: Getty Images
You should be saving money for retirement if you don’t want to end up struggling to live on Social Security alone. Social Security is meant to replace just about 40% of pre-retirement earnings, which isn’t nearly enough to maintain the standard of living for most people.
You have a lot of options for where to save for retirement. A Roth IRA is one of those options. But, is opening a Roth IRA the right choice for you? Here’s how to decide.
Are you eligible to contribute to a Roth IRA?
There are strict income limits for who can contribute to a Roth IRA. You need to make sure you’re eligible before you find a brokerage account and open one. If you make too much money, you cannot invest in this kind of retirement account. The table below shows how much you’re allowed to earn and still make Roth IRA contributions.
| If your tax filing status is… | And your modified adjusted gross income is… | This is your Roth IRA contribution limit for 2024 |
|---|---|---|
| Single | $146,000 or less | Up to $7,000 ($8,000 if 50 or older) |
| Single | $146,000 to $160,999 | Partial contribution only |
| Single | $161,000 or more | Ineligible |
| Married Filing Jointly | $230,000 or less | Up to $7,000 (or $8,000 if 50 or older) |
| Married Filing Jointly | $230,000 to $239,999 | Partial contribution only |
| Married Filing Jointly | $240,000 or more | Ineligible |
If your income is above the limit, you’ll need to consider other retirement investment options.
Do you think you’ll owe higher taxes as a retiree than you do now?
A Roth IRA works differently than many other retirement accounts. You don’t get tax breaks when you contribute. Instead, you put after-tax money into your account, so your tax bill won’t be reduced when you invest. However, you can withdraw money as a retiree without being taxed.
Other accounts, like a traditional IRA and 401(k), give you an upfront tax break. Those would likely be better for you if you think your tax bracket is higher now than it will be as a retiree and you want to get your tax breaks at a time when you’re paying more. But, if you expect your taxes to increase in the future, that’s a good reason to open a Roth and start investing in it.
Are you in a financial position to invest in a Roth IRA?
You’ll need money to put into a Roth IRA before you open one. It’s typically a good idea to prioritize retirement savings over many other financial goals, because you’ll need money to live on as a senior. Unless you have high-interest debt you’re working to pay off, this means you should be investing something for your future.
Most brokerage accounts don’t have minimum contributions for IRAs. So, even if you can only invest $10 a month, it may still be worth opening an account and getting started.
Have you maxed out your employer’s 401(k) match?
Finally, you’ll need to check whether you are currently contributing enough to your 401(k) to earn all the matching funds your company provides.
Most employers match contributions workers make to a 401(k), up to a certain percentage of salary. This is basically free money, and you should contribute enough to claim it before using a Roth IRA. If you don’t have the money to max out your 401(k) and contribute to a Roth, there’s no use in opening this account since your 401(k) should be the priority.
If you’re already earning your maximum employer match, though, then it can be a smart choice to put some of the remaining retirement contributions into a Roth so you diversify your tax savings and claim some now and some later.
By asking yourself these questions, you can make the best and most informed choice about whether opening a Roth IRA in 2024 is the right move for you.
Alert: highest cash back card we’ve seen now has 0% intro APR until 2025
This credit card is not just good – it’s so exceptional that our experts use it personally. This card features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!
Click here to read our full review for free and apply in just 2 minutes.
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Christy Bieber has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
