You can fund a Roth IRA in a variety of ways, including IRA rollovers, bank transfers and even cash deposits. However, there are limits to the amount you can contribute each year to this popular tax-advantaged retirement savings vehicle. And you can only contribute money, not stocks or other assets. The specifics of putting money into your Roth IRA will be determined by the bank, brokerage or other financial institution that sponsors it. Below, we’ll break down the different ways in which you can contribute to a Roth IRA. A financial advisor can help you plan to save and invest for a secure retirement.
Roth IRA Basics
The Roth IRA is a popular and powerful way to save for retirement. Unlike a traditional IRA, you can’t deduct Roth IRA contributions from your current income for tax purposes. Instead, you pay taxes on the money up front, allowing your contributions to grow tax-free.
Roth IRAs are often used by younger savers who anticipate being in a higher income tax bracket in their later years when their careers have advanced and they earn more money. For these workers, it can be advantageous to pay taxes now – probably at a lower rate – on money that will eventually be withdrawn tax free in retirement.
Roth IRA Contribution Limits
Before you make a contribution to a Roth IRA, be sure you are allowed to under the rules for Roth IRA contributions. Generally, you’ll be eligible to contribute to a Roth IRA if you have taxable compensation and your income is below a certain threshold. Still, there are some important restrictions that may limit how much you can contribute.
First off, there’s no age limit on Roth IRA contributions, but there are caps on the amount you can contribute each year. For 2023, the maximum you can contribute is $6,500. If you’re age 50 or older, you can add an extra $1,000 for a total annual contribution of $7,500.
There are also caps on the maximum income you can earn while still remaining eligible to make Roth IRA contributions. For instance, for someone filing their taxes as an single individuals, you can only contribute the maximum if your modified adjusted gross income was less than $129,000 in 2022 or $138,000 in 2023. At higher income levels, the allowable contribution amount reduces and eventually phases out. A single person who earned $144,000 in 2022 or $153,000 in 2023 is ineligible to contribute to a Roth IRA for that year.
Ways to Contribute to a Roth IRA
If you’re eligible to contribute to a Roth IRA, you have a number of options for funding your account. They include:
- Bank transfers. You can transfer funds from your bank account using an ACH transfer or another electronic funds transfer. You can do this by visiting the website of the bank or brokerage that sponsors your Roth IRA and following their directions for making a contribution.
- Automatic contributions. To contribute on an ongoing basis, you can set up automatic contributions. You can do this by providing your bank routing and account numbers to the financial institution that sponsors your Roth IRA. You’ll then specify the dollar amount and frequency of your automatic contributions.
- Automatic paycheck deductions. If you get paid electronically, you can have a percentage of your earnings sent directly to your Roth IRA every payday. Similar to a direct deposit, you’ll have to provide your employer with your Roth account information.
- Cash or checks. If you prefer to use cash or a paper check and the institution sponsoring your Roth IRA has a physical branch, you can drop by the location and make a contribution in person. Regular mail will also work for checks, although it’s not safe to mail cash.
- Mobile app. If your bank or brokerage has a mobile app, you may be able to contribute by scanning a paper check and depositing it remotely.
- Rollovers. If you have a pre-existing retirement account, such as a traditional IRA or a 401(k) from a former employer, you can contribute to your Roth IRA with a rollover. If the funds are coming from a traditional IRA or another retirement account that is funded with pre-tax dollars, you will have to pay taxes on the transferred funds before depositing them in the Roth IRA.
There are a number of ways to contribute to a Roth IRA. Before doing so, make sure you are eligible under the income restrictions. Depending on your income, you may not be able to contribute the maximum amount or any money at all. If you meet the income requirements, however, you can contribute via bank transfer, automatic paycheck deduction, paper check, cash or rollover.
Roth IRA Tips
- Saving for a comfortable retirement involves a lot of decisions, including whether to contribute to a Roth IRA. Many of those decisions will get easier to make with the help of a financial advisor. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- All Roth IRAs are not created equal. They differ in the size of their fees, the expansiveness of their investment options and the breadth of their services. SmartAsset’s Best Roth IRA 2023 distills the universe of Roth IRA providers to the top eight and helps you identify which one is best for you.
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