It seems like everyday the US Stock Market is flirting with all time highs. A strong stock market is a good indicator of strong retirement accounts. Most individuals are now seeing their retirement accounts reflect these all time highs.
The IRS recently released their 2020 contribution limits on retirement accounts. While some will see a slight push, 2020 Roth IRA contribution limits will remain the same.
How Much Can You Contribute to a Roth IRA?
In 2019, the IRS raised the amount one could contribute to a Roth IRA to $6,000 annually. If you are over 50 year old, you can contribute a max of $7,000. This amount has stayed the same for 2020.
Why did the amount stay the same? Mainly because one year of inflation growth isn’t enough to raise the amount. Typically, the IRS prefers to raise the amount by $500 increments. However, a strong economy going forward could mean the next increase comes soon.
Why I Invest in a Roth IRA
Roth IRA’s have numerous benefits. The main reason that I invest in a Roth IRA is for the tax free income it will yield in retirement. By paying taxes on Roth IRA contributions now, the government will not tax any future withdrawals as long as you abide by a few rules.
The second reason I love a Roth IRA is because of the investment options offered. My Roth IRA is run through Vanguard. I have access to a large variety of their mutual funds, all with extremely low expense ratios.
Can you Make Too Much Money to Participate?
The simple answer is YES. For 2020, if you are a single tax filer and your AGI (Adjusted Gross Income) is over $139,000, then you are not eligible. For couples filing together, that number is higher at $206,000.
Why does the IRS do this? In essence, they don’t want people they view as high income earners to reap any additional tax breaks.
Should you Consider a Roth IRA?
If you have the financial capacity to do so and you fall within the rules, then YES! When combined with social security and a company sponsored 401k, a Roth IRA gives you the opportunity to hedge your tax bill during your golden years.
Many of us worry if we will have enough money in retirement. I feel confident that because of my Roth IRA, I will have more than enough.
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James Hendrickson is an internet entrepreneur, blogging junky, hunter and personal finance geek. When he’s not lurking in coffee shops in Portland, Oregon, you’ll find him in the Pacific Northwest’s great outdoors. James has a masters degree in Sociology from the University of Maryland at College Park and a Bachelors degree on Sociology from Earlham College. He loves individual stocks, bonds and precious metals.