A big change for Roth IRAs that could help you save more for retirement this year. This is Money Unscripted, a podcast from Fidelity Investments with Fidelity's Rita Assaf and me, Ally Donnelly. Today we're talking about updates to Roth and traditional IRAs.
Rita, let's jump right in. So, while some things are changing, like income limits for Roth IRAs, some things are staying the same. So, I want to focus first on the contribution limit for both Roth and traditional IRAs. What do I need to know for 2025?
Well, the contribution limit is not changing for either the Roth or traditional IRA. It's $7,000 in 2025, which is the same as it was in 2024.
The contribution limit is staying the same, but the income limit is going up. So that means more people might qualify to contribute to a Roth, which could be a big deal for retirement savings.
Yes. So, the IRS has increased income limits, also known as modified adjusted gross income. For individuals that are filing their taxes, that number is up by $4,000 in 2025, which is exciting. And what that means is that if you make less than $150,000, you can actually contribute the full $7,000 to a Roth IRA. However, if you make between $150,000 and $165,000, you can make only a partial contribution. And anyone making over $165,000 isn't eligible to contribute to a Roth IRA.
Now, if you file your taxes married filing jointly, those MAGI limits are also increasing by $6,000. So what that means is couples earning less than $236,000 can make that full contribution to a Roth IRA. However, if you're making between $236,000 and $246,000, you can make a partial contribution. For couples that are making over $246,000, again, you're not eligible.
OK, so I'm looking at these income limits, and I fit into a box. So, if I qualify for a Roth IRA, why would I want to consider contributing to one?
Well, Roth IRA allows you to contribute with after tax contributions. And then the investments can grow tax free. And then those withdrawals are actually tax free in retirement, provided certain conditions are met. And the Roth IRA allows for certain flexibility so those after-tax contributions can actually be withdrawn at any point. And there are no required minimum distributions when you are in retirement.
So, let's talk catch-up contributions. Myself, being of a certain age, I'm very interested in this. They're a way for people to ramp up their retirement savings as they get closer to retirement. What do we need to know there?
That's right. So, if you're age 50 or older, you can make an extra $1,000, what we call catch-up contribution, to that $7,000 contribution limit.
OK, let's talk taxes. For traditional IRA contributions, fill me in.
Well, the MAGI has also increased for traditional IRAs where you can actually tax deduct a certain portion of your traditional IRA contributions, which can reduce your taxable income. If an individual is covered by a workplace retirement plan but also has an IRA, those contributions are tax deductible if you're making between 79,000 and 89,000. That's up $2,000.
If you're married filing jointly, the range is up $3,000 between $126,000 to $146,000. And for a married couple, if one spouse is not covered by a workplace plan but the other is, it's actually $6,000 increase in 2025, which means it's between $236,000 through $246,000.
What if I have both a traditional IRA and a Roth IRA? How do I consider those contribution limits?
Well, the limit remains $7,000, no matter how many IRAs you have. So that means you can't contribute.
Total.
Yeah, you can't contribute to each with $7,000. And same goes for the catch-up contribution limit-- that still remains $1,000 across all of your IRAs.
All right, good to know. I always like to have some sense of where I stand. Obviously, it's different for everybody and your income and your life situation. But as people are saving, can you give us some sense of the average balances in some of these IRAs?
Yeah, the average balance, which includes both Roth and traditional IRAs, have increased over time, which is fantastic. People are saving. But that's not meant to be overwhelming. It's just a benchmark. And we're happy that people are actually saving more. What we've seen is the balances have actually increased. So, for Gen Z, their balance is now $6,300. For millennials, it's now $23,400. And for Gen X, it's $97,200. And for boomers, it's actually $243,900. That's great, because they're the closest to retirement age.
We've thrown a lot of numbers at people, but if you could leave them with some key takeaways, what would those be? And let's start with traditional IRAs. For traditional IRA, I would just definitely check out whether you're now eligible to deduct contributions based on those new MAGI limits.
And what about Roth?
Well, for Roth IRAs, I would look at whether those new MAGI limits actually allow you to contribute directly to a Roth IRA. And if you don't, the one option that you can consider is a Roth conversion. However, Roth conversions do have tax implications, which you want to weigh heavily before just doing one.
Awesome, Rita, thank you.
Thank you for having me.
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