2019: The Year I Maxed Out My Roth IRA - Twice!

Jan 25

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Gearing up for 2020 and tax season, I’m excited to share a major money move I made in 2019: the year I maxed out my Roth IRA - twice!

Check out the screenshot from my Roth IRA below.

Screenshot of Roth IRA account spike, from a contribution I made to max out my 2018 Roth IRA in March 2019.

Curious how I did it? Keep reading to learn more!

But first, let's back it up…

What exactly is a Roth IRA?

A Roth IRA is a type of individual retirement account, where you use post-tax dollars to invest for retirement, meaning you contribute with money after you've paid taxes via your paycheck. No matter what type of IRA you may have (see other types here), each is made up of a bunch of different investment options, just like any other retirement account -- i.e. 401(k), 403(b), etc. -- BUT the benefits of a Roth IRA are two-fold:

With a Roth IRA, because you are contributing with post-tax money, you get not just your contributions back (what you put into the account), but also any earnings you make over time, TAX-FREE in retirement. This is a huge benefit!

But benefit #2 is actually my favorite...

2. Unlike most other retirement investment vehicles, if you need access to your funds before you retire, you can withdraw your contributions (but not earnings) tax AND penalty-free, anytime you want. Under most other types of investment vehicles, like a 401(k) or 403(b), you'd be hit with a 10% penalty, but not a Roth IRA. This can be really helpful, especially for those that are scared to invest because they want to still have access to their money if they need it.

In other words, a Roth IRA gives you the best of both worlds: You can save for your retirement, but still have access to those contributions for ANYTHING if you want down the line, at any time. To be clear, I wouldn’t recommend this, because you want your money to stay in those accounts to grow and compound. If you take it out you won’t be able to do that. But in the event of an emergency, it’s nice to know you could.

Are a Roth IRA and Traditional Roth the same thing?

No, they’re not. While the contribution limits between a traditional and Roth IRA are the same ($6,000 for 2020), how you contribute to each of them is not. traditional IRA means you contribute with pre-tax money (before you get your paystub with all the deductions on it), as opposed to a Roth IRA, which uses post-tax money (money after taxes have been taken from your paycheck). Some people like traditional IRAs because the pre-tax contributions mean you have a bit more money in the account to grow. That said, when you withdraw those funds in retirement, you pay taxes on them then, unlike a Roth IRA when they’re already paid. You’d also likely face a 10% penalty if you withdraw before age 59 1/2, unlike a Roth IRA where you can withdraw your contributions (but not earnings), anytime, tax and penalty-free.

Got it. So how’d you max out your Roth IRA twice?

Like any tax-advantaged investment vehicle, there are limits to how much you can contribute every year. In 2018 and 2019, the maximum contribution limits for a Roth IRA were $5,500 and $6,000 respectively. That said, you could contribute to a 2018 Roth IRA from January 1, 2018 - April 15, 2019 and a 2019 Roth IRA from January 1, 2019, to April 15, 2020.

The dates are specified by the IRS, but work in your favor, because if you come into extra cash at the beginning of the year (YEAHHH tax refund!), you can still contribute to the previous year’s IRA, which is exactly what I did.

Want to know about other types of tax-advantaged accounts that can make your $$ work for you?

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After contributing to my 401k in 2018 (you ALWAYS want to take advantage of your employer match!), I had some major catching up to do for my 2018 Roth contribution limit. You can see the spike in the picture at the top of this post, where I specified in March 2019 a contribution to my 2018 Roth IRA — which is perfectly legal. In the same month, I also made a contribution to my 2019 Roth IRA, which I was able to max out for 2019 later in the year.

To break it down:

I contributed and maxed out my 2018 Roth IRA in March 2019. Before the April 15, 2019 deadline.
I also contributed to and maxed out my 2019 Roth IRA, January 2019 - December 2019.

Two different Roth IRA years, same calendar year.

(And totally OK per the IRS).

Why does this matter matter?

The advantage of Roth IRA contribution deadline being in April of the following calendar year, is that my Roth IRA account gets to take advantage of the contributions and growth from two years, instead of one. Without allowing me to contribute to the 2018 year through April 15, 2019, I would have been limited to just the $6,000 in the 2019 calendar. Thanks to the contribution timeframes, I was able to contribute $5,500 for 2018, plus the $6,000 for 2019, for $11,500 total.

If you’re curious, that $5,500 I was able to contribute to my Roth IRA has the potential to make me over $35,000 by the time I retire, assuming an 7 percent average annual return. How’s that for a money move?

Maxing out your Roth IRA is one money move. Ready for more?

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This is awesome! But how can I do it?

LISTEN UP, MONEY MAKERS! You can STILL contribute to your 2019 Roth IRA through April 15, 2020, assuming you are eligible (see table and contribution limits below).

You’ll note that the table is based on your modified gross adjusted income (MAGI), but if your annual income is below that amount, you’re in the clear. If you’re getting close to that figure (way to go!) and you want to know exactly what your MAGI is, read this article or talk to an accountant. There is no IRS form to find your MAGI, but you can find your AGI (which is usually pretty close) here.

If you’re eligible, you can set up a Roth IRA in addition to any employer-sponsored account you may have, like a 401k, 403b or Thrift Savings Plan. If playing catch up for 2019, just make sure to specify with your financial provider. If you automatically transfer funds from a bank account to your Roth IRA, if you DON’T specify the year, most financial providers will assume you want it to go to the current calendar year. What you want to do is max out the previous year’s Roth IRA (2019), then let yourself catch up on the current year (2020).

One last thing!

If you’re looking for recommendations for where you can set up your Roth IRA, skip the management fees with Betterment, or check out some other options here.

So excited for all of you about to make some extra money moves year!

Disclaimer: Any product mentions made or recommendations provided by Beworth Finance LLC or its Founder are made solely in the author's opinion and do not constitute professional financial or legal advice. No user should make an investment decision without first conducting the requisite due diligence.