Not everyone is eligible to contribute to a Roth IRA. Income limits apply, meaning individuals who earn too much may be restricted from making direct contributions, while those with little to no earned income may also face limitations.

A Roth IRA offers the advantage of tax-free withdrawals in retirement, provided certain conditions are met. While it functions similarly to a traditional IRA, the key difference lies in how taxes are applied. Contributions to a Roth IRA are made with after-tax dollars, meaning they are not tax-deductible. However, once you reach retirement, your withdrawals—including both contributions and earnings—are completely tax-free. In contrast, traditional IRAs are funded with pre-tax dollars, allowing for an immediate tax deduction, but withdrawals in retirement are subject to income tax.

For many retirement savers, a Roth IRA can be a better choice, particularly if they expect to be in a higher tax bracket later in life. However, due to income restrictions, it is not accessible to everyone.

Roth IRA Income Limits: Who Can Contribute and Who Can’t

A Roth IRA is a valuable retirement savings tool, but not everyone qualifies to contribute. The ability to fund a Roth IRA depends on your earned income and whether it falls within the limits set by the Internal Revenue Service (IRS). These income thresholds are adjusted periodically, so it’s essential to check the latest limits before planning your contributions.

Who Can Contribute to a Roth IRA?

Anyone with earned income can contribute to a Roth IRA, provided their income is within the IRS-defined limits. If your earnings exceed the threshold, your contribution amount may be reduced—or you may be entirely ineligible to contribute.

For the 2024 tax year, the contribution limits are as follows:

• Single filers: If your modified adjusted gross income (MAGI) is less than $146,000, you can contribute the full amount.
• Married couples filing jointly: If your MAGI is below $230,000, you can contribute the maximum amount.

Once your income surpasses these amounts, the contribution limit begins to phase out.

• Single filers: Contributions phase out between $146,000 and $161,000. If your MAGI is $161,000 or above, you cannot contribute.
• Married couples filing jointly: Contributions phase out between $230,000 and $240,000. If your MAGI is $240,000 or above, you are ineligible.

What Happens If You Earn Too Little?

While earning too much can disqualify you from making Roth IRA contributions, earning too little can also be a barrier. You cannot contribute more than your earned income for the year.

For example:

• If you earn $5,000 in a year, your Roth IRA contribution cannot exceed $5,000, even if the general contribution limit is higher.
• If you have zero earned income, you are ineligible to contribute to a Roth IRA for that tax year, though you can still hold an existing account.

Understanding Earned Income for Roth IRA Contributions

The IRS defines earned income as wages, salaries, commissions, bonuses, and other compensation received for work performed. The most common forms of eligible income include:

• Wages and salaries reported in Box 1 of your W-2
• Net earnings from self-employment
• Bonuses and commissions

For self-employed individuals or those in pass-through businesses, earned income is calculated as net earnings from business operations, minus deductions for contributions made to their retirement plan and 50% of their self-employment taxes.

Income That Does NOT Qualify for Roth IRA Contributions

Certain types of income do not count toward Roth IRA eligibility, including:

• Rental income from investment properties
• Stock dividends and capital gains
• Interest income from savings accounts or bonds
• Pension or annuity payments
• Passive income from partnerships where no substantial services are provided

Additionally, alimony payments received from divorce settlements executed before December 31, 2018, can be considered eligible earned income. However, alimony from newer settlements does not qualify under current tax laws.

Planning for Roth IRA Contributions

If your income exceeds the Roth IRA limits, consider alternative strategies like a Backdoor Roth IRA, which involves contributing to a traditional IRA and then converting it to a Roth IRA. If you’re below the income threshold, contributing to a Roth IRA can be an excellent way to secure tax-free retirement income.

Understanding the income requirements and planning your contributions accordingly can help ensure you make the most of this retirement savings tool while staying within IRS guidelines.

No Age Limits on Roth IRA Contributions

Roth IRAs are commonly associated with retirement savings, but there are no age restrictions on who can contribute, as long as they meet the income requirements. This flexibility makes Roth IRAs a valuable option for individuals at any stage of life.

Contributing at Any Age

Anyone with earned income can contribute to a Roth IRA, regardless of their age. This means:

• Teenagers with a job can open and fund a Roth IRA. If they are minors, the account may need to be set up as a custodial Roth IRA, managed by a parent or guardian.
• Older adults who are still working can continue making contributions even into their 70s and beyond. There is no upper age limit, as long as they have qualifying earned income.

Roth IRAs and Workplace Retirement Plans

Even if you contribute to an employer-sponsored retirement plan, such as a 401(k), you can still invest in a Roth IRA—provided you meet the income limits. Participation in a qualified retirement plan does not affect your eligibility to contribute.

Traditional IRAs and the SECURE Act

Historically, traditional IRA contributions were not allowed after age 70½. However, the SECURE Act of 2019 removed this age limit, allowing individuals to continue contributing as long as they have earned income. This aligns traditional IRAs more closely with Roth IRAs in terms of contribution eligibility.

Conclusion

A Roth IRA is a powerful retirement savings tool that offers tax-free withdrawals, making it an attractive option for many investors. However, not everyone qualifies to contribute due to income limitations and earned income requirements. Understanding these eligibility criteria is essential for making informed financial decisions and maximizing retirement savings.

For those who exceed Roth IRA income limits, alternative strategies like a Backdoor Roth IRA can provide access to its benefits. On the other hand, individuals with low or no earned income should explore other savings options to ensure they are still building wealth for the future.

Beyond traditional retirement accounts, diversifying your investments can help create a more stable financial future. Compound Real Estate Bonds (CREB) offers a compelling alternative with 8.5% APY, real estate-backed security, and no hidden fees. Whether you are supplementing your Roth IRA savings or seeking additional passive income, CREB provides a reliable and flexible investment option.

By carefully planning your contributions and exploring diversified investment opportunities like CREB, you can build a strong financial foundation for retirement—one that ensures stability, growth, and financial security in your later years.