If you have started investing in a Roth IRA, congratulations! You are on your way to building and preserving wealth for your retirement and for future generations. Once you have opened and funded your Roth IRA at a reputable brokerage such as a full-service investment firm or quality online broker such as ETrade, you may be wondering, how much can I put in my Roth IRA?
It is advised that you contribute the maximum amount allowed by the government, due to the fact that the more you can save in a tax-advantaged account, the greater the tax-favored gains you can realize. As with all tax-favored accounts, the IRS imposes certain restrictions, including income and age specifications on Roth IRA accounts.
How Much Can I Put In My Roth IRA? Investment Guidelines
Your contributions to your Roth IRA are limited to the total of your taxable compensation or $5,000, whichever is smaller if you are under 50 years old. If you will be older than 50 before the end of the year, you will be able to invest an added $1,000 for a combined total of $6,000.
This is an added incentive from the IRS to save more money in the final years before retirement.
There are also income restrictions on investing in a Roth IRA. In order to contribute the maximum amount to your Roth IRA your modified adjusted gross income but not exceed $105,000 a year for singles, and $167,000 a year for married couples that file jointly.
If your income exceeds these limits, you could contribute smaller amounts, but these phase out after $120,000 for single filers, and $177,000 for joint filers.
How To Invest In Your Roth IRA
With a few exceptions – including purchasing real estate for personal use as well as loaning money to yourself – you may choose to invest the funds in your Roth IRA in any number of ways. As with other investment portfolios, it is recommended that you diversify your capital across a variety of assets classes including an age-appropriate mix of stocks and bonds, as well as certain qualified real estate purchases and annuities.
The important thing to consider is your time frame for investing. While stock have historically provided the potential for spectacular long-term growth, the closer you are to retirement, the less likely you are to be able to tolerate short-term market volatility.
For the majority of investors, low-cost index funds as well as mutual funds are the easiest and best course of action. While there is the option to invest funds in “hard assets” such as gold or real estate, this may not be the best choice for the average investor’s retirement funds.
What To Do If You Are Starting Late
It is never too late to save for retirement if you are dedicated and committed to the task. There are many incentives for late retirement savers, and there are options for beginning investors to open accounts with as little as a few hundred dollars.
While it is more advantageous to start investing early, you can build a financial cushion for yourself in a relatively short time by setting a savings budget and sticking to it, as well as making the maximum contributions to your retirement accounts.
Take advantage of free financial services and advice offered by many banks and brokerages, as well as find and eliminate wasteful spending to better position yourself to increase your savings.
You may not retire a millionaire, but a solid financial base can supplement a pension or social security check, and add to the quality of life in your golden years.
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