Three Roth IRA Rules You Should Know During Tax Season

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Tax season is the perfect time to reconsider your Roth IRA contribution strategy. While Roth IRAs offer incredible tax advantages, they have special rules that can be confusing even for seasoned investors. After all, the humble Roth IRA is one of the most powerful retirement savings tools available if used correctly.

You have until the April tax filing deadline to create and fund an IRA for the previous tax year. This means you have until April 15, 2025, to open and contribute to a Roth for 2024. We’re also in the window where you can fund your 2025 IRA at the same time. Additional contributions for 2025 can be made until April 15, 2026, and so on. Keep in mind that filing a return filing extension does not extend the deadline for making IRA contributions.

Here are the top contribution guidelines you need to know about a Roth IRA right now so you can maximize your retirement savings and avoid potential penalties.

Rule 1: Earned Income

The most fundamental rule of Roth IRA contributions is simple: you can only contribute money that you actually earned. This means that your contributions must come from:

  • Salary from place of work

  • Salary

  • Adviсe

  • commissions

  • Self-employment income

  • Bonuses

  • Alimony

Important points to remember:

  • Investment income, Social Security benefits, and retirement benefits are not considered earned income.

  • If you are a stay-at-home spouse, you can still make contributions based on your working spouse’s earned income.

  • For students or part-time workers, your contribution is limited to your actual earned income for the year.

Rule 2: Annual Contribution Limits

The IRS sets specific limits on the amount you can contribute to a Roth IRA each year. For 2024 these limits are:

  • Under 50: Maximum annual contribution of $7,000.

  • 50 years and older: $8,000 (includes additional $1,000 contribution)

These limits are cumulative for all your IRAs. So if you have multiple Roth accounts or traditional IRAs, your total contributions cannot exceed the annual limit.

Attempting to deposit an amount in excess of the annual limit will result in a penalty tax of 6% of the excess amount unless it is removed immediately. If you exceed your Roth IRA contribution limit, you have until the tax filing deadline and extension to withdraw the excess contributions and any income they generated.

Rule 3: You cannot contribute more than you earn

This rule is a direct continuation of the earned income requirement. Your Roth IRA contribution cannot exceed your total earned income for the year. For example:

  • If you earned $5,000 while working part-time, your maximum Roth IRA contribution is $5,000.

  • If you only earned $3,000, you can only contribute up to $3,000.

  • If you earned $0, you cannot make Roth IRA contributions.

Pro Tips for Roth IRA Contributions

As a general rule, keep detailed records of your earned income. I know that I rely on automatic contributions to stay within the limit and also to ensure that my fund is as maxed out as possible.

Remember that contribution limits may change annually, so stay informed. Tax season is a great time to reconsider your Roth IRA strategy. For me, this means making contributions as early in the calendar year as possible. I highly recommend moving forward, making the most of 2025 as soon as you can, and then contributing a large lump sum right at the start of 2026. After all, compound interest is the name of the game, and investing early means more time for compounding to work .

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