A Roth IRA is an Individual Retirement Account where you can contribute after-tax dollars. While you may not receive current-year tax benefits, your contributions and earnings can grow tax-free, and you can withdraw them tax-free and penalty free after age 59½. In addition to this, once the account has been open for five years you may pull out what you have put into the account.
Why consider a Roth IRA?
A Roth IRA can be a good savings option for those who expect to be in a higher tax bracket in the future, making tax-free withdrawals even more advantageous. However, there are income limitations to opening a Roth IRA, so not everyone will be eligible for this type of retirement account.
Currently if you file as a single person and your Modified Adjusted Gross Income (MAGI) is above $144,000 for tax year 2022 and $153,000 for tax year 2023, or if you file jointly and you have a combined MAGI above $214,000 for tax year 2022 and $228,000 for tax year 2023, you may not be eligible to start a Roth IRA.
If you do not meet these requirements, you can contribute to a Roth IRA by other means such as a Roth IRA Conversion. Please give us a call if you are interested in learning more.
What benefits do Roth IRAs provide for your retirement?
- No contribution age restrictions: You can contribute at any age as long as you have a qualifying earned income.
- Earnings grow tax-free: Contributions and potential investment gains accumulate tax-free.
- Qualified tax-free withdrawals: Withdrawals can be taken out tax-free and penalty free, provided you’re age 59½ or older and you have met the minimum account holding period (currently five years).
- No mandatory withdrawals (unlike a Traditional IRA): There is no need to take required minimum distributions with a Roth IRA.
- No income taxes for inherited Roth IRAs: If you pass your Roth IRA onto your heirs, their withdrawals will also be income tax-free.