Money Management

Want to put money into a Roth IRA in 2024? Read on to learn why you need to understand IRS rules, income limits, and tax implications. [[{“value”:”

Opening a Roth IRA with a brokerage firm can be a great move for your long-term financial security. That’s because Roth IRAs give you long-term tax-free growth, and tax-free withdrawals when you retire or use the money for some other qualifying purposes.

But deciding when and how to put money into a Roth IRA is not always simple. Let’s look at the biggest Roth IRA contribution mistakes and see how you can avoid them.

1. Contributing to a Roth IRA if your income is too high

Not everyone is allowed to use a Roth IRA — there are some income limits. If you’re a high earner, you might make too much money to be allowed to get the tax advantages of a Roth IRA.

Under IRS rules for 2024, single filers with a modified adjusted gross income (AGI) of less than $146,000, and married couples filing jointly with modified AGI of less than $230,000, can contribute the full amount to a Roth IRA. If your income is above these limits, you are in the “phaseout range,” which means you can make a partial contribution to your Roth IRA, but not the full amount.

You need to have a pretty high income before you have to worry about being ineligible for a Roth IRA. But before you make plans to contribute to a Roth IRA, make sure you’re allowed to do it. If your income is over six figures or you’re getting a big pay raise this year, you might want to check on the limit and see if you’re on track to qualify for a Roth in 2024.

2. Forgetting to use catch-up contributions (if you qualify)

Are you age 50 or over? If so, congratulations — the IRS is giving you a special gift to help save more money for retirement. This gift is called a “catch-up contribution,” and it means you are allowed to save an extra $1,000 per year in your IRA (Roth or traditional). With a catch-up contribution, age 50-plus retirement savers can put $8,000 into a Roth IRA in 2024.

If you’re eligible for this extra savings boost, be sure to take advantage of it. If you’re 50 years old, invest $8,000 per year in your Roth IRA, and earn 8% average annual returns for the next 15 years, you’d have $234,594 at age 65.

But if you only invested $7,000 per year (with no catch-up contribution) for 15 years, with the same 8% rate of return, you’d only have about $205,270. Saving that extra $1,000 per year could give you an extra $29,324 after 15 years — making that catch-up contribution worth an extra $2,000 per year!

3. Putting too much money into your Roth IRA

It’s exciting to open a Roth IRA, but be careful not to exceed the contribution limits. If you put too much money into your IRA, you will have to withdraw it — or face potential tax penalties of 6% per year.

This makes it important to understand the IRA income limits. If you’re a high earner whose income is close to the phaseout limit, crunch the numbers and make sure you’re actually eligible for a Roth IRA before you move money into one.

4. Putting more than $7,000 into a Roth IRA and traditional IRA

Remember that the IRS rules for IRA contribution limits include Roth IRAs and traditional IRAs. For 2024, people under the age of 50 are allowed to put up to $7,000 into all IRAs combined — not $7,000 into a Roth and $7,000 into a traditional IRA.

If you want to put money into a traditional IRA and Roth IRA, that’s totally fine. But the total amount must add up to $7,000 or less (or $8,000 if you’re age 50-plus). So you could put $2,000 into a Roth IRA and $6,000 into a traditional IRA, or split the money 50/50 between both accounts.

But be aware that not everyone is allowed to make tax-deductible contributions to a traditional IRA — there are income limits based on your filing status and whether you or your spouse are covered by a retirement plan at your job.

5. Using a Roth IRA when you’re in a high tax bracket

Roth IRAs are not the right choice for every person at every stage of life. The idea of putting money into a Roth IRA is that you expect your tax rate in retirement to be higher than it is today. With a Roth, you have to pay taxes on the current year’s income that you contribute to the Roth IRA, but you then get tax-free growth and tax-free withdrawals in retirement.

If you’re 25 years old and in the 12% tax bracket, opening a Roth IRA is a great choice — at this age and stage of your career, your taxes might be as low as they will ever be again. But if you’re 45 years old and in the 24% tax bracket, you might prefer to get a tax deduction by using a traditional IRA. Or split your contributions with $3,500 into a traditional IRA, and $3,500 into a Roth IRA. That way you get some immediate tax relief on this year’s tax return, and some long-term tax-free gains for your future retirement.

Using a Roth IRA is mostly a matter of understanding the IRS rules and limits. If you’re a higher earner, double check the income limits and fine print. But if you qualify, putting money into a Roth IRA can help you maximize your retirement savings.

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Getting money back from the IRS? Read on to see if using it for a CD is a good idea. [[{“value”:”

At this point, many people have filed their taxes and are waiting for their refunds to hit their bank accounts. If you’re anticipating a nice payday from the IRS in the coming weeks, you may be thinking about opening a certificate of deposit (CD). But is that a good idea? It could be — under the right circumstances.

Why now’s a good time to open a CD

The Federal Reserve spent a good chunk of 2022 and 2023 raising interest rates to slow the pace of inflation. As such, savings account and CD rates are up right now.

But at some point in 2024, the Fed is likely to start cutting rates as long as inflation doesn’t jump. And once that happens, CDs may start to pay a lot less. If you’re getting money back from the IRS later this month or in April, it could pay to use it to open a CD and lock in a higher rate on your cash while you can.

When you shouldn’t open a CD

Although it’s a good time to open a CD in general, and a tax refund is a great way to fund one, there are a couple of scenarios where it’s not the best idea to use that cash for a CD. The first is if you have no emergency fund, or you have a really small one that won’t suffice in covering at least three full months of essential living expenses.

In late 2023, SecureSave found that 63% of Americans could not cover an unplanned $500 expense by dipping into their savings. So if you’re in a similar situation, do not put your tax refund into a CD, where you’ll risk a penalty for withdrawing your money before your CD matures. In that case, your money belongs in a savings account.

A second scenario where a CD doesn’t make sense right now is if you’re carrying high-interest debt. Let’s say you’re getting a $2,000 tax refund, only you owe $2,000 on a credit card with an 18% APY. You may be able to get, say, a 5% APY on a 1-year CD. But you’ll lose more money in interest on your credit card in this case than you’ll gain by keeping that cash in a CD for the next 12 months.

Think through your options carefully

It can be tempting to open a CD at a time when rates are attractive, and when there’s also talk of rates shrinking in the not-so-distant future. But before you open a CD, think about your other financial needs.

If you need to boost your emergency fund or pay off costly debt, hold off on getting a CD. And even if you have solid emergency savings and no high-interest debt, before you commit to a CD, think about your broad financial picture.

Is your laptop showing signs of wear? If so, you might need to replace it. Has your car been making interesting sounds on the way to work? You may soon be looking at a repair, in which case having your money tied up in a CD may end up being a point of stress.

In some cases, opening a CD with your tax refund is a really savvy move. But make sure you can afford to tie that money up before you actually do it.

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This new program could make filing your taxes fast and free. Here’s what you need to know about it. [[{“value”:”

Filing taxes can be a bit perplexing. There are the forms themselves and then there’s the fact that you have to pay to submit a return proving to the government that you’ve already paid it enough.

Clearly I’m not the only one still scratching my head over that, because the IRS has recently introduced a new Direct File program that makes it free for qualifying taxpayers in 12 states to file their federal tax returns. Here’s what you need to know about it.

Who qualifies?

You may be eligible to try the IRS’s new Direct File program for your 2023 taxes if you live in one of the following states:

ArizonaCaliforniaFloridaMassachusettsNevadaNew HampshireNew YorkSouth DakotaTennesseeTexasWashingtonWyoming

In addition to living in a participating state you may only report the following types of income:

W-2 wage incomeSSA-1099 Social Security income1099-G unemployment compensation1099-INT interest income of $1,500 or less

You must also claim the standard deduction and you can only claim a few other select tax breaks. Check out the Direct File website to see if you qualify.

How does it work?

The Direct File program works similar to many online tax software. It will ask you questions and walk you through each tax form. You input your information and when you’re done, you submit your return for free. You can access Direct File from any computer, tablet, or smartphone and file a return in as little as 30 minutes.

If you have questions, you can contact live online support from IRS staff Monday through Friday, 7 a.m. to 10 p.m. ET. But it’s important to note that they can’t access your personal tax records or give you advice on how to handle your specific return. They’re only there to assist with concerns about the program itself or to clarify the form’s terms or instructions. If you want more personalized assistance, you should consider consulting a tax professional in your area.

The Direct File program is only for federal tax returns, though the IRS has partnered with a few states to import the information from your federal return into the states’ online tax tools. When you do the eligibility check on the Direct File website, it should notify you if this is a possibility in your state. If not, you may need to use a different tax software program to submit your state return.

When will other states get access to Direct File?

Direct File is currently a pilot program, which is why it’s only operating in a limited number of states with limited features. Residents of other states won’t have the option to use Direct File for their 2023 taxes. But the program should open up to more Americans in future years. It’s something to keep an eye on when the time comes to file your 2024 taxes next spring.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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Credit card debt hit $1.13 trillion, with consumers adding $50 billion to balances in the fourth quarter of 2023. Here’s how to keep from adding to this figure. [[{“value”:”

Household credit card debt has increased dramatically, with consumers adding an estimated $50 billion in combined credit card debt just in the fourth quarter of 2023. This means the collective credit card balance among U.S. households hit $1.13 trillion.

That’s a huge amount of money owed on credit cards, especially given the national average interest rate on those cards is 21.47%. But the good news is, you don’t have to be among the millions paying a fortune in interest to creditors. Just follow these tips to thrive even as credit card companies rake in the cash.

1. Pay off your credit card balance in full every month

The best way to thrive in this high-debt environment is to simply avoid going into credit card debt. You do not have to pay interest if you pay off all the charges on your card when your statement balance comes.

Keep track of what you are spending on your cards to ensure you have the money in the bank to pay them off. You can sign into your account regularly to check your balance, and can live on a budget to ensure your charges don’t get out of control.

You can even set up automatic payments for the full balance right out of your checking account so you’re never tempted to let your balance grow.

2. Consider refinancing if you already have debt

If you already have credit card debt, paying it off in full ASAP should be your top financial goal since interest rates are so expensive. It can be easier to do that if you refinance the debt to reduce your rate.

A personal loan is one great option for refinancing if you qualify for one. You can get a personal loan at a lower rate than your cards in many cases (the national average personal loan rate is just 12.35%). Personal loans also have predictable payoff schedules lasting a few years, so you won’t be stuck in debt indefinitely as you could be if you only make credit card minimum payments.

You can also get a balance transfer credit card to make paying off your balance cheaper. Balance transfer cards offer promotional 0% rates for a period of time, such as 15 months. Just be sure you can pay off the full balance you’re transferring before the promotional rate resets. And be aware that many balance transfer cards charge an upfront fee of 3% to 5% of the transferred balance.

3. Use credit cards as a tool

Finally, you can and should use credit cards as a tool as long as you can do so responsibly. Don’t be afraid to sign up for a good rewards card, charge essential purchases on it, and get points and miles for doing so.

As long as you’re living on a budget and paying off the card in full every month, there’s no reason not to take advantage of the chance to have the card companies actually pay you.

By following these three hacks you can thrive rather than struggle along with the millions of your peers who owe a ton of money on their credit cards. And if you know others who are having a hard time with their debt, help them make a payoff plan of their own so this trillion-dollar balance will shrink.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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