A Roth IRA stands as a tax-advantaged retirement savings option. In contrast to a Traditional IRA, contributions to a Roth IRA are made with after-tax income, lacking an immediate tax deduction. However, qualified withdrawals, encompassing contributions and growth, are tax-free.
Given the tax-free nature of this account, the Internal Revenue Service (IRS) imposes restrictions on contributors based on income. In 2024, if your income exceeds $240,000 (Married Filing Jointly) or $161,000 (Single), direct contributions are disallowed, necessitating a strategy like a Roth Conversion or Backdoor Roth IRA.
Additionally, there's an annual limit on contributions to Traditional and Roth IRAs combined. In 2024, the limit is $7,000 for those under 50 and $8,000 for those aged 50 and older, which includes a $1,000 catch-up contribution.
For high-net-worth medical professionals, contributing annually is typically done as a lump sum due to the funding complexity. Now, the question arises: when is the optimal time for doctors and dentists to fund their Roth IRA?
You can make an IRA contribution for a given year anytime between January 1st and the tax-filing deadline of the following year (usually April 15th). Therefore, you can make a 2024 IRA contribution until April 15, 2025—but we don't recommend waiting unless you have to.
Funding the Roth IRA in January provides the most long-term advantage. By contributing early, investments have more time to grow tax-free. Just as in medicine, early intervention often yields better outcomes; in investing, the earlier you invest, the longer your money has to grow.
While early-year contributions offer advantages, other considerations come into play. Factors such as funding availability, timing contributions with bonuses, weighing the pros and cons of debt reduction versus investing, ensuring an adequate emergency fund, and others should be taken into account.
If you're making an IRA contribution, no matter the timing, you're on the right track. For those interested in exploring the benefits of funding a Roth IRA but unsure if you can, schedule a consultation with one of our financial planners.
If you have additional questions about Roth IRAs, peruse these relevant blogs.
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As the Director of Financial Planning for Spaugh Dameron Tenny, Jordan applies his academic and practical experience in the creation and maintenance of the firm’s financial plans, as well as coordinating research efforts for products and strategies that may benefit clients. Originally from Canada, Jordan came to Charlotte on a golf scholarship where he attended Queens University of Charlotte. In addition, Jordan has a Master’s degree in Wealth and Trust Management.
