January 2019 is the time to invest the maximum in your 2019 Roth IRA, if you can. If you can't, at least get started by setting up automatic monthly contributions. Why?
The interest and growth of your retirement investment during 2019 is tax free. You are optimizing your return by making your 2019 as early as possible. Plus, you are paying yourself first. This is key to becoming financially independent, the dream oasis (FIDO).
What applies to the 2019 Roth IRA?
For tax year 2019:
- Single, your AGI must be under $137,000. Once you reach an AGI of $122,000, the contribution phaseout rules kick in. You can still make Roth contributions but not the full amount.
- Married and file jointly, your MAGI must be less than $203,000. The contribution phaseout starts at $193,000.
- Note you don't get a tax break in 2019 when investing in a Roth IRA. However, both your principal and investment growth withdrawals are tax free when you reach retirement age.
Good news! For the 2019 tax year the IRS is increasing the contribution limits for IRAs, including Roths. In 2019, you can contribute up to $6,000 (under 50 years of age) or $7,000 (older than 50).
There are benefits of a Roth IRA too. You can withdraw the principal you added to your account at any time without penalty (if you need to do so). This makes the Roth IRA a flexible account for retirement. Note the withdrawal applies to principal only and not your investment earnings.
NOTE: First and foremost, have you contributed the max to your account for 2018? If not, you still have time to do so. You have until the tax filing deadline in April 2019 to contribute to your 2018 Roth IRA (2018 tax year). Before you do so, make sure you don't exceed the income limits and contribution phaseouts. Talk to your financial advisor.
Some of the numbers for 2018:
- Single, you can’t contribute directly to a Roth if you make more than $135,000. The Roth contributions phaseout starts at $120,000.
- Married filing jointly, your phaseout limits include your modified adjusted gross income (MAGI) at $189,000. If you earn $199,000 or more, you can’t contribute directly to a Roth.
Do you plan to be a Roth IRA millionaire? Take the first step, open a Roth IRA account early in your career. Do it even if you have an employer 401(k) plan. Pay yourself first!
Additional Roth IRA Resources
How to Save $1 Million in Less Than 40 Years with a Roth (Kiplinger article)
Money Saving Resources (additional resources you can us for building wealth)
Over the Income Limit? Talk to your financial advisor about a Backdoor Roth Conversion. Read Eric Roberge's simplified explanation of how a backdoor Roth conversion works at, Going Beyond Simple Money.
How To Save For Retirement When Your Job Has No 401(k) Plan (Huffington Post article)
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