What you need to know – the crazy Motley

Retirement savers like the Roth IRAs because they are designed to provide tax benefits that no other retirement account can offer. The Roth IRAs can grow tax free throughout your career and beyond. Unlike many other types of retirement accounts, you do not have to pay any taxes when you make withdrawals from a Roth IRA retirement.

With contribution ceilings for the Roth IRAs in 2019, they are expected to reach $ 5,000 versus $ 5,500 in 2018, or $ 7,000 for those aged 50 or older, and the use of these accounts will become more beneficial. Before you do that, however, you must be aware of the Roth IRA income limits that may hinder your ability to use the account for your retirement savings.

The 2019 income limits for Roth IRA contributions

The 2019 Roth IRA income limits vary depending on the status of your tax return. The starting point is to calculate your modified adjusted gross income, which includes all of your income but excludes the amounts included in the Roth conversions. You must also deduct what is called deductions greater than the limit, which includes penalties for early withdrawals of bank CDs and contributions to health savings accounts.

The table below will tell you what to do with the figure obtained and what it means for your Roth IRA contributions.

Data source: IRS.

How much can you contribute

The rules for determining how much you can contribute to a Roth IRA in 2019 are usually simple:

• If your income is less than the figure in the first column, you can make a total contribution of $ 6,000 for the under 50s or $ 7,000 for those 50 and over.
• If your income is higher than the figure in the second column, you can not contribute anything to a Roth in 2019.
• If your income is between the two digits, you can make a pro-rated contribution. For single taxpayers, for every $ 1,500 you earn above the number in the first column, you will lose 10% of your maximum contribution of $ 6,000 or $ 7,000. For married taxpayers, you will lose the same 10% for each $ 1,000 income that is greater than the amount in the first column.

For example, say you are 48 years old, married, and have a joint income of $ 200,000. If you look at the graph above, your income is $ 7,000 lower than the $ 193,000 threshold. At a rate of 10% per $ 1,000, that means you will lose 70% of your contribution. For a person under the age of 50 with a maximum of $ 6,000, the reduction will be $ 4,200, leaving you with a final eligible contribution of $ 1,800.

Is there a job around?

Those who find themselves with lower limits for Roth IRA contributions than they would like have an alternative: the Roth backdoor. To use this strategy, you need to contribute to a traditional IRA – for which there is no income limit preventing contributions – and then convert that IRA to Roth.

However, there is a potential problem with backdoor IRAs. They only work well in two cases: you can deduct the contribution to the IRA or you do not have any other traditional IRAs. Otherwise, the conversion will result in an increase in the tax bill, which most taxpayers do not generally want.

Some workers are lucky enough to have the Roth 401 (k) options in their workplace pension plan. The 401 (k) s are not required to offer an alternative to Roth, but it is worth checking with your HR department to find out if you are one of the lucky ones.

Use a Roth and save on taxes

Even with income limits, the Roth IRAs deserve to be examined more closely. Those who are allowed to use them to save for retirement enjoy tax benefits that are difficult to find elsewhere and, along with other strategies, can help achieve your long-term retirement goals.