Roth IRA

 

What is a Roth IRA?

A Roth IRA is an individual retirement account to which individuals can contribute money without taking an income tax deduction (contribute after-tax dollars). With this tax-advantaged vehicle, individuals enjoy tax-free growth and tax-free withdrawals in retirement. There are no age restrictions to contribute, but there are income limits. There are no required minimum distributions (mandatory withdrawals) in retirement.

 

TL;DR –A Roth IRA is a tax-advantaged account that allows you to pay taxes on contributions now and save taxes on withdrawals in retirement.

 

Eligibility

  • Must have earned income (wages, salary, self-employment income)

  • Single filers must make below $125K MAGI*

  • Married filing jointly must make below $198K MAGI*

Contribution Limits

  • $6,000 per year if under age 50

  • $7,000 per year if age 50 or over

(contribution limits apply to IRAs and Roth IRAs in the aggregate)

Withdrawals

  • Withdrawal of contributions (base) are always tax and penalty-free

  • Withdrawal of earnings (growth) are tax-and penalty-free if the Roth IRA is at least five years old and owner has reached 59½

Taxes

  • Contributions are made with after-tax dollars (no tax deduction)

  • Earnings grow tax-free

  • Withdrawal of base is tax and penalty free; withdrawal of earnings are tax and penalty-free after age 59½.

 

*Modified adjusted grows income (MAGI) is simply adjusted gross income (AGI) before subtracting deductible student loan interest.

 
Edward Oh