Who Can Invest in an IRA?

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Your ability to invest in an IRA depends on your income and whether you have access to a workplace plan. Learn more here. [[{“value”:”

An individual retirement arrangement (IRA) gives you the chance to save for retirement while getting a tax break. You can open an IRA with any brokerage firm and you have the ability to make tax-deductible contributions to it, up to the year’s annual contribution limit. In 2024, that’s $7,000, or $8,000 if you’re 50 or older and able to make catch-up contributions.

One of the great things about an IRA is you don’t need an employer to open one for you. So, whether you have a 401(k) or other retirement plan at your job or not, you can find one of the best brokers for an IRA and start putting away money for your future.

You do, however, want to make sure that you are eligible to make deductible contributions before you get started. Here’s how to know.

Do you or your spouse have a workplace retirement plan?

If neither you nor your spouse has a workplace retirement plan, then the good news is you are allowed to make tax-deductible contributions to an IRA, no matter how much money you earn. Income limits only apply if you or your spouse has access to an employer-sponsored retirement plan. You can contribute the entire $7,000 (or $8,000 if you’re eligible for catch-up contributions) no matter what you earn, if you don’t have a workplace plan.

However, that is the combined limit for both traditional IRAs and Roth IRAs. Roth IRAs are another kind of retirement plan you can open for yourself, but they come with a deferred tax break. You contribute to them with after-tax dollars (so no deduction is available the year you invest), but you’ll be allowed to withdraw money tax free.

You’ll want to decide if you should contribute to a traditional IRA, Roth IRA, or both by thinking about whether you want your tax break now or later. This can depend on whether you expect your tax rate to be higher now or in the future, as it makes sense to try to save on taxes during a time you’ll be paying the highest rate.

If you are interested in putting at least some money into a Roth, be aware there are different Roth IRA income limits — so be sure you fall within those. If you don’t want to contribute to a Roth, then you don’t need to worry about this and can put the entire deductible $7,000 or $8,000 into your traditional IRA if you can afford to max out your contributions.

Here are the IRA income limits if you or your spouse has a workplace plan

So, what if you or your spouse do have a workplace retirement plan? If that’s the case, you may lose your ability to make deductible contributions to your IRA if you earn too much.

Here are the rules if you have a workplace plan. These limits are based on adjusted gross income (AGI), which is income minus deductions.

And here are the limits if your spouse has a workplace plan.

As long as your income doesn’t go above these limits, you should seriously consider putting some of your retirement funds into an IRA this year. That’s because IRAs come with some great benefits, including:

A wider choice of investments than a 401(k) can typically offer.Potentially lower fees, compared to what you may have to pay for 401(k) administration or the expenses you’d have to pay for the investments your 401(k) offers.Control over your own retirement account, so you don’t have to wait for an employer to open one for you, and if you leave your job, your account won’t change.

If these benefits are appealing to you, get started investing today, so you can come as close as possible to maxing out your account by year’s end.

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