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4 ways to contribute to an IRA

August 23, 2022
|
Insights
updated on
April 15, 2024

Key Takeaways

  • Saving for retirement sooner rather than later is important, and an IRA can help you do it.
  • Cash contributions, fund transfers, rollovers, and Roth conversions are key ways to contribute to an IRA.
  • Alto makes it easy to invest your retirement dollars and, while many custodians charge a fee for incoming transfers, Alto doesn’t.

At Alto, we get a lot of questions about ways to contribute to an IRA. While the process may seem intimidating, today we’re looking at four ways to fund an IRA: cash contribution, IRA transfer, employer-sponsored retirement plan rollover, and Roth conversion.

1. Make a cash contribution from your bank account

By linking your bank account to your IRA, you can contribute at your desired frequency. If you’d like to max out your IRA through cash contributions and you qualify to contribute up to the full amount, you can contribute approximately $115 per week, but that’s not the only way you can do it. Contributions are flexible, and you can contribute monthly, quarterly, or even all at once – at your own pace, up to the limit.

Contributing consistently makes it easier to dollar-cost average, which is a popular investment strategy recommended by many experts.

Cash Contribution Limits

According to the IRS, the following contribution limits apply to IRA cash contributions for the 2024 tax year:$7,000 ($8,000 if you’re age 50 or older). Additionally, if you choose to contribute to a Roth IRA, there are income limits that apply. To contribute to a Roth IRA as a single person, your modified adjusted gross income (MAGI) must be under $153,000 for tax year 2023 and $161,000 in 2024. If you’re filing jointly with a spouse, it must be under $228,000 for 2023 and $240,000 for 2024.

Filing Status Modified Adjusted Gross Income (MAGI) Contribution
Single, head of household, or married filing separately and you did not live with your spouse at any time during the year < $129,000 Up to the limit
≥ $129,000 but < $144,000 A reduced amount
≥ $144,000 Zero
Married filing jointly or qualifying widow(er) < $204,000 Up to the limit
≥ $204,000 but < $214,000 A reduced amount
≥ $214,000 Zero
Married filing separately and you lived with your spouse at any time during the year < $10,000 A reduced amount
≥ $10,000 Zero

If you and/or your spouse are approaching the income limit, it may be a good idea to max out your Roth IRA while you can, as there are a multitude of tax advantages associated with Roth IRAs. Namely, withdrawals are tax-free upon qualified distribution.

Keep in mind that if you contribute to a Traditional IRA, you may qualify for a tax deduction, depending on your income and filing status.

To initiate a cash contribution to your Alto IRA or Alto CryptoIRA, follow the instructions here.

2. Transfer funds from another IRA

An IRA transfer is the act of transferring money from an IRA to a different retirement account. In this case, into another IRA. IRA transfers do not count toward the annual contribution limit.

If the money goes into a similar-type account and no distribution is made to you, the transfer will not incur a penalty or fee.So, for example, a transfer from one tax-deferred account to another tax-deferred account.

Here are the types of accounts from which you can transfer.

Traditional IRA

Investing in a traditional IRA means that your retirement contributions are not taxed upfront. This can be a great option for those who have limited income to invest or who anticipate being in a lower tax bracket when distributions are taken.

Roth IRA

Unlike a traditional IRA, contributions made to a Roth IRA are taxed upfront, meaning that when an individual begins taking distributions from the Roth IRA, those funds will be completely tax-free (given certain conditions are met).

SEP IRA

A SEP IRA is an employer-sponsored plan, and contributions come directly from an employer. SEP IRA contributions are 100% vested on day 1, which makes them a strong tool to attract and retain employees.

SIMPLE IRA

SIMPLE is an acronym for ‘Savings Incentive Match Plan for Employees.’ A SIMPLE IRA allows employees and employers to contribute to traditional IRAs set up for employees and can be ideal for small employers not currently sponsoring a retirement plan.

To initiate an IRA transfer, follow the instructions here.

3. Roll over a retirement account from an old job.

If you’ve recently  changed employers,, you may have a 401(k) or other employer-sponsored retirement account that you have not yet rolled over. For most people, rolling it over into an IRA is the best option, as cashing out will incur taxes and penalties. Rollovers do not count toward the annual contribution limit.

There are three types of employer-sponsored retirement plans from which you can roll over funds.

Traditional or Roth 401(k)

Arguably the most well-known employer-sponsored retirement account, 401(k)s allow employees to contribute a portion of their wages to individual accounts.

Traditional or Roth 403(b)

A 403(b) plan (also called a tax-sheltered annuity or TSA plan) is a retirement plan offered by public schools and 501(c)(3) tax-exempt organizations. Employees save for retirement by contributing to individual accounts.

Traditional or Roth 457(b)

457(b) plans allow employees of sponsoring organizations to defer income taxation on retirement savings into future years. This type of plan is available for certain state and local governments and tax-exempt organizations.

To initiate a rollover, follow the instructions here.

4. Fund a Roth IRA via Roth conversion.

It’s important to keep tax implications in mind when rolling over funds. Because of a Roth IRA’s tax-free nature, many choose to transfer funds from a tax-deferred retirement account like a 401(k) or traditional IRA to a tax-free Roth IRA by paying a one-time tax on the amount to be converted. This is known as a backdoor Roth IRA and can be hugely beneficial for those whose income exceeds the IRS limit for Roth IRA contributions.

Backdoor Roths can also be a great option for investors who have time to see their IRA continue to grow and make up for the current tax cost since Roth IRAs do not have required minimum distributions (RMDs) like traditional IRAs, allowing their Roth IRA accounts to continue growing and even be passed on to heirs. However, a backdoor Roth IRA may not be right for everyone. Like with any investment, it’s important to do your own research.

The bottom line

As mentioned earlier, many custodians charge a fee for incoming transfers. Not Alto. We want to make the process as seamless as possible. Now that you know the four ways to contribute to an IRA, you might consider investing a portion of those funds in alternative assets, which has the potential to significantly increase returns and add diversity to your portfolio.

Invest in alternative assets using tax-advantaged retirement funds.

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