A Roth IRA is a true gift for retirement savers: While there’s no immediate tax benefit, withdrawals in retirement are completely tax-free. But there are some rules for Roth IRAs, including income limits.
Roth IRA income limits for 2019
Filing status | 2019 modified AGI | Maximum contribution |
---|---|---|
Married filing jointly or qualifying widow(er) | Less than $193,000 | $6,000 ($7,000 if 50 or older) |
$193,000 to $202,999 | Contribution is reduced | |
$203,000 or more | Not eligible | |
Single, head of household or married filling separately (if you did not live with spouse during year) | Less than $122,000 | $6,000 ($7,000 if 50 or older) |
$122,000 to $136,999 | Contribution is reduced | |
$137,000 or more | Not eligible | |
Married filing separately (if you lived with spouse at any time during year) | Less than $10,000 | Contribution is reduced |
$10,000 or more | Not eligible |
Roth IRA income limits for 2018
Filing status | 2018 modified AGI | Maximum contribution |
---|---|---|
Married filing jointly or qualifying widow(er) | Less than $189,000 | $5,500 ($6,500 if 50 or older) |
$189,000 to $198,999 | Contribution is reduced | |
$199,000 or more | Not eligible | |
Single, head of household or married filling separately (if you did not live with spouse during year) | Less than $120,000 | $5,500 ($6,500 if 50 or older) |
$120,000 to $134,999 | Contribution is reduced | |
$135,000 or more | Not eligible | |
Married filing separately (if you lived with spouse at any time during year) | Less than $10,000 | Contribution is reduced |
$10,000 or more | Not eligible |
There are three steps to starting a Roth IRA:
- Determine what type of investor you are: hands-on or hands-off.
- Choose a provider: Your choice should align with your investor type above.
- Pick your investments: If you go with a broker, look for low-cost mutual funds and ETFs. If you choose a robo-advisor, they’ll pick these for you.
Read on for more details on each of these steps.
1. Determine what type of investor you are
- If you’re a “do-it-yourself” investor, choose a brokerage. You can open a Roth IRA at an online broker and then choose your own investments. This may be simpler than you think — you can build a diversified portfolio with just three or four mutual funds. With the providers detailed below, you generally won’t pay an account fee (though that may require your agreeing to electronic document delivery or maintaining a minimum account balance), so the primary costs you need to watch for are trading commissions and investment fees (which are also called expense ratios).
- If you’re a “manage it for me” investor, choose a robo-advisor. If you’d rather have someone pick an investment portfolio for you, you can open your Roth IRA at a robo-advisor. Robo-advisors are online investment services that build and maintain a diversified portfolio for you. You pay a small fee for the service, but their fees generally are substantially lower than a human financial advisor — typically 0.25% to 0.50% of the assets under management annually. These services are growing rapidly today: Our top two robo-advisor picks, Wealthfront and Betterment, each have more than $11 billion in assets under management.
2. Choose a provider and open your Roth IRA
Best Roth IRA brokers for “do-it-yourself” investors
For people who want to pick their own investments, opening a Roth IRA at an online broker makes a lot of sense. At the best brokers, you’ll find a large list of low-cost investments to choose from, including index mutual funds and exchange-traded funds. The top brokers also offer extensive retirement planning tools, robust customer service and reasonable account minimums and fees. And you maintain complete control over how your retirement funds are invested. Here are two of the favorites from our 2019 analysis:
» Want more options? Check out our top picks for Roth IRA brokers.Best Roth IRA robo-advisors for “manage it for me” investors
For people who want to invest for retirement but don’t want to worry about managing their portfolio over time, a robo-advisor is an easy choice. Generally, robo-advisors hire investment pros to develop a handful of portfolios aimed at different types of investors. Some robos offer portfolios that vary based on amount of risk, with “aggressive” ones for people who want a high percentage of their portfolio in stocks and “conservative” for people who seek a less volatile investment account.
As an investor, all you have to do is open your Roth IRA, link your bank account and follow the steps the provider uses to build your portfolio. The robo-advisor then purchases the investments for you and manages the account over time. Many robos also offer services that can help maximize your savings, such as goal-setting tools to get your finances on track, and strategies to reduce your tax bill. (Robo-advisors generally are registered investment advisors, operating under a similar structure to human investment advisors.)
» Want more options? Check out our picks for the best robo-advisors.3. Select your investments
A Roth IRA is an account, not an investment. Contributing is just the first step. If you want to build wealth over time, you need to invest that money.
If you’re a hands-off investor, you can choose a robo-advisor and they’ll choose a diversified investment portfolio for you.
If you’re a DIY type, you can get that diversification on your own for less by building a portfolio out of index funds and ETFs. To do that, you’ll want to decide how much of your money to put toward riskier investments, like stock funds, and how much you want to keep relatively safe, in bond funds and cash. This mix is called your asset allocation.
IRAs give you access to a large pool of investment options. Once you’ve decided on your allocation, you can select specific funds to meet that.
If you get stuck? Use a model. Check out the portfolios used by robo-advisors (often displayed on their websites), then mimic them, being sure to rebalance as needed since they won’t be doing it for you.
» Dig deeper: Check out these simple portfolios for retirement goals
Is that it?
That’s it. Except, a handful of considerations:
- If you have a 401(k) that offers matching dollars and you’re not contributing enough to earn them all, that’s where you should direct your retirement savings first. Our Roth IRA vs. 401(k) article explains how to prioritize the two accounts.
- A Roth IRA is the best choice for many folks, but for some a traditional IRA might be better. Here’s more on a Roth vs. traditional IRA.
- Once you figure out how much you can contribute, consider setting up automatic transfers. Not only do you avoid the hassle of initiating the transfer each month, but you ensure you’re saving regularly. (Also, some brokers waive their initial deposit requirement if you agree to automatic transfers each month.)
- Be sure you don’t contribute too much. Contributing more than the limit may leave you subject to an IRS penalty. If your goal is to spread that $6,000 over a year, contribute $500 a month in 2019. If you’re 50 or older, you can put in $583.33 a month. Keep in mind that the contribution limit is for all your IRA accounts combined — if you have a Roth and a traditional, that limit is a total across both accounts.