What is a Roth IRA?
A Roth IRA is an individual retirement account where you pay the taxes on the money before its invested in your account. Essentially, you will receive tax-free-growth in retirement since you already paid taxes on the money prior to being invested.
How does a Roth IRA work?
You invest money that has already been taxed into your account and over time the money will see compounding growth. When you reach 59½ you can make tax-free withdrawals. In the event of an emergency, you can withdrawal your contributions penalty-free from the account prior to age 59½.
Who should open a Roth IRA?
Everyone should consider a Roth IRA, but an experienced investment consultant or tax professional should consider your individual circumstances. A Roth IRA is a great saving strategy for younger people, because they are likely to be in a lower tax bracket when they are just starting out in their careers then people who are further along in their careers.
Roth IRAs provide tax diversification by allowing people to choose between their IRA and a Roth IRA when making withdrawals in retirement to stay within tax bracket boundaries.
What are the benefits of a Roth IRA?
Tax-free distributions. At age 59½, you may take distributions including earned interest from an account you’ve had for at least five years, without paying federal income tax.
No required minimum distributions (RMDs). Roth IRAs are not subject to the RMDs you will see in Traditional IRAs or work-based retirement accounts like a 401(k) or 403(b).
Easier withdrawals. You may withdrawal contributions at any time without taxes or penalties. You may be penalized on distributions of interest gains prior to age 59½.
Maximize saving. You can maximize your savings by contributing to a Roth IRA and a Traditional IRA in the same tax year.
Flexible contributions. You may contribute to your Roth over the course of the year or in one lump sum up to the tax filing deadline.
Age limit. There is no age limit to start a Roth IRA, but there are income and contribution limits.
What are the Roth IRA withdrawal rules?
You may withdrawal your contributions at any time without penalties or taxes.
Account holders 59½ and older may take distributions, including interest, without paying taxes, if they’ve held the account for at least five years.