Roth IRAs are a type of Individual Retirement Account. They provide certain advantages that many investors find appealing. In this article, we will provide you with an introduction to Roth IRAs to help you better understand them and see if one is right for you.
Roth IRAs are funded with after-tax dollars. In other words, the money you have already paid taxes on. Due to this fact, you can accumulate tax-free growth and take tax-free withdrawals. You are also able to pass your accounts onto your beneficiaries’ tax-free. However, because there is no type of taxation on these accounts, contributions made to them are not deductible on your tax return.
Many are interested in investing in Roth IRAs for the other advantages that they offer. One such advantage is that they do not have Required Minimum Distributions. There are also no age restrictions on contributions. This means that if you have qualifying earned income you can contribute. Even if you are over age 70 1/2. Additionally, you are not restricted by plans offered by your employer. This means that if you have a 401(k) or 403(b) you are still able to make Roth IRA contributions.
Just like any type of investment, there are limitations associated with Roth IRAs. The first is regarding when you can start to make withdrawals. If you want to take tax-free withdrawals, you must meet one of two qualifications. The first is that you have had your account for at least five years. The second is that you are 59 ½ or older.
There are also limitations on the amount you can contribute. For 2019 you are limited to $6,000 a year. Or $7,000 if you are over the age of 50. Additionally, you can never contribute more than you earn in a tax year.
Income and Contribution Amounts
The most complex restrictions are related to your income and the amount you can contribute. The total amount you can contribute will depend on your tax filing status and your Modified Adjusted Gross Income. If your income falls below the set amount for our tax filing status you will be able to contribute the full $6,000. If your income falls within a certain higher threshold you will qualify for a reduced contribution limit. You can find your contribution limits on the chart below.
|Single||Full: Less than $122,000||Full: Less than $124,000|
|Partial: $122,000-$137,000||Partial: $124,000-$139,000|
|Married Filing Jointly||Full: Less than $193,000||Full: Less than $196,000|
|Partial: $193,000-$203,000||Partial: $196,000-$206,000|
|Married Filing Separately||Full: $0.00||Full: $0.00|
|Partial: Less than $10,000||Partial: Less than $10,000|
Setting Up a Roth IRA
If you think that a Roth IRA is right for you, you will need to set one up. You will need to meet with a qualified investment advisor who will take you through the process and get one set up for you.
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