We all know that the April 15th tax filing deadline will be rolling around shortly. However, don’t forget that this marks another important opportunity that you won’t want to pass up: The last day to make your Roth IRA contribution for 2023.

As a reminder, for last year you’re allowed to contribute up to:

• $6,500 if you’re under age 50
• $7,500 if you’re age 50 and older

Looking forward to 2024, those limits have increased to:

• $7,000 if you’re under age 50
• $8,000 if you’re age 50 and older

MAGI Limits Have Increased

Roth IRAs may be one of my favorite types of retirement accounts. But they do come with some restrictions. If you make too much money, then the IRS will not let you contribute to one (at least not directly).

The cut-off is measured by something called your MAGI or “modified adjusted gross income”. Your MAGI is basically the same thing as the AGI you calculate when filing your taxes plus some certain deductions added back in.  

As of 2024, you can contribute to a Roth IRA if:

• You’re a single filer with a MAGI under $161,000
• You file a joint return and your MAGI is under $240,000

The Backdoor is Still Open

Do you earn more than these MAGI limits? Then no worries. Thanks to a loophole in the tax code, it’s entirely possible to still move money into your Roth IRA. It just involves a few extra steps utilizing something dubbed the Backdoor Roth IRA.

Here’s a quick summary of how the Backdoor strategy works:

• First, make a non-deductible contribution to a traditional IRA. “Non-deductible” means that it will not be subtracted from your income for the year, so you’ll be paying taxes on that amount. This will also be the same $6,500 and $7,000 limits for 2023 and 2024.
• Second, transfer the amount from the traditional IRA to the Roth. Note that even though you already paid your taxes on this contribution, it may have produced earnings – even if only one day has passed. Therefore, you’ll have to be careful about how you report it on your taxes and use a professional.

Yes, using a Backdoor will take a little more work. However, it’s well worth the effort. Based on how much a Roth account can do for you and the tax-free income it can produce in the future, this is an opportunity that you won’t want to pass up! 

Want more strategies on how to lower your taxes? Get the How to Lower Your Taxes Course today!