Roth IRA 2018 Contribution Limit: Save More for Retirement

The Basics: What You Need to Know

A Roth IRA is a tax-advantaged retirement savings account that allows you to contribute after-tax dollars that grow tax-free. This means you won't pay any income tax on your earnings when you withdraw them in retirement. For 2018, the contribution limit for Roth IRAs is $5,500 ($6,500 if you're age 50 or older). This is up from $5,500 in 2017.

Eligibility for Roth IRA Contributions

To be eligible to contribute to a Roth IRA, you must meet certain income requirements. For 2018, the phase-out range for Roth IRA contributions is as follows:

If your income exceeds the phase-out range, you may still be able to contribute to a Roth IRA, but your contributions will be subject to a reduced limit or may not be allowed at all.

Making Roth IRA Contributions

You can contribute to a Roth IRA in one of two ways:

• Direct deposit: You can set up a direct deposit from your checking or savings account into your Roth IRA.
• Mail-in contributions: You can mail a check or money order to your Roth IRA custodian.

The deadline for making Roth IRA contributions for 2018 is April 15, 2019. However, if you file your taxes by the October 15th deadline, you have until October 15th to make your contribution.

Benefits of Roth IRA Contributions

There are several benefits to contributing to a Roth IRA, including:

• Tax-free growth: Earnings on your Roth IRA investments grow tax-free. This can lead to significant savings over time.
• Tax-free withdrawals: You can withdraw your Roth IRA earnings tax-free in retirement. This can provide you with a valuable source of income in your golden years.
• No mandatory withdrawals: Unlike traditional IRAs, Roth IRAs do not have required minimum distributions (RMDs). This means you can leave your money in your Roth IRA and continue to grow it tax-free for as long as you like.

Pain Points and Motivations

Pain Points:

• Income limits: The income limits for Roth IRA contributions can make it difficult for higher earners to save for retirement in a Roth IRA.
• Contribution limits: The contribution limits for Roth IRAs are relatively low, which can limit the amount of money you can save for retirement.
• Taxes on early withdrawals: If you withdraw earnings from your Roth IRA before age 59 1/2, you may be subject to income tax and a 10% penalty.

Motivations:

• Tax-free growth: The tax-free growth of Roth IRA investments is a major motivation for saving in a Roth IRA.
• Tax-free withdrawals: The ability to withdraw Roth IRA earnings tax-free in retirement is a major benefit that can help you improve your financial security in your golden years.
• No mandatory withdrawals: The lack of required minimum distributions (RMDs) for Roth IRAs is a major benefit that allows you to leave your money invested and growing tax-free for as long as you like.

How Roth IRA Contributions Can Benefit You

Roth IRA contributions can provide you with a number of benefits, including:

• Increased retirement savings: Roth IRA contributions can help you increase your retirement savings and reach your retirement goals sooner.
• Tax-free income in retirement: Roth IRA withdrawals are tax-free, which can provide you with a valuable source of income in retirement.
• Financial security: Roth IRA contributions can help you improve your financial security in retirement by providing you with a tax-free source of income and a nest egg to fall back on.

Comparing Roth IRAs to Other Retirement Accounts

Roth IRAs are just one type of retirement account. Other types of retirement accounts include:

• Traditional IRAs: Traditional IRAs allow you to contribute pre-tax dollars that grow tax-deferred. This means you won't pay income tax on your contributions or earnings until you withdraw them in retirement. However, traditional IRA withdrawals are subject to income tax.
• 401(k) plans: 401(k) plans are employer-sponsored retirement plans that allow you to contribute pre-tax dollars. 401(k) contributions are also tax-deferred, meaning you won't pay income tax on your contributions or earnings until you withdraw them in retirement. However, 401(k) withdrawals are subject to income tax.
• 403(b) plans: 403(b) plans are retirement plans for employees of public schools and certain other tax-exempt organizations. 403(b) plans are similar to 401(k) plans, but they have different contribution limits and rules.

The best type of retirement account for you depends on your individual circumstances. If you're not sure which type of retirement account is right for you, talk to a financial advisor.

Frequently Asked Questions (FAQs)

1. How much can I contribute to a Roth IRA in 2018?
The contribution limit for Roth IRAs in 2018 is $5,500 ($6,500 if you're age 50 or older).

2. Am I eligible to contribute to a Roth IRA?
To be eligible to contribute to a Roth IRA, you must meet certain income requirements. For 2018, the phase-out range for Roth IRA contributions is as follows:

3. How do I contribute to a Roth IRA?
You can contribute to a Roth IRA in one of two ways:

• Direct deposit: You can set up a direct deposit from your checking or savings account into your Roth IRA.
• Mail-in contributions: You can mail a check or money order to your Roth IRA custodian.

4. What are the benefits of Roth IRA contributions?
The benefits of Roth IRA contributions include:

• Tax-free growth: Earnings on your Roth IRA investments grow tax-free. This can lead to significant savings over time.
• Tax-free withdrawals: You can withdraw your Roth IRA earnings tax-free in retirement. This can provide you with a valuable source of income in your golden years.
• No mandatory withdrawals: Unlike traditional IRAs, Roth IRAs do not have required minimum distributions (RMDs). This means you can leave your money in your Roth IRA and continue to grow it tax-free for as long as you like.

5. What are the drawbacks of Roth IRA contributions?
The drawbacks of Roth IRA contributions include:

• Income limits: The income limits for Roth IRA contributions can make it difficult for higher earners to save for retirement in a Roth IRA.
• Contribution limits: The contribution limits for Roth IRAs are relatively low, which can limit the amount of money you can save for retirement.
• Taxes on early withdrawals: If you withdraw earnings from your Roth IRA before age 59 1/2, you may be subject to income tax and a 10% penalty.

6. How do Roth IRAs compare to other retirement accounts?
Roth IRAs are just one type of retirement account. Other types of retirement accounts include:

• Traditional IRAs: Traditional IRAs allow you to contribute pre-tax dollars that grow tax-deferred. This means you won't pay income tax on your contributions or earnings until you withdraw them in retirement. However, traditional IRA withdrawals are subject to income tax.
• 401(k) plans: 401(k) plans are employer-sponsored retirement plans that allow you to contribute pre-tax dollars. 401(k) contributions are also tax-deferred, meaning you won't pay income tax on your contributions or earnings until you withdraw them in retirement. However, 401(k) withdrawals are subject to income tax.
• 403(b) plans: 403(b) plans are retirement plans for employees of public schools and certain other tax-exempt organizations. 403(b) plans are similar to 401(k) plans, but they have different contribution limits and rules.

Conclusion

Roth IRA contributions can be a valuable tool for saving for retirement. If you're eligible to contribute to a Roth IRA, you should consider doing so. The tax-free growth and tax-free withdrawals can provide you with a significant financial advantage over the long term.