What is a Roth IRA?
With a Roth IRA, contributions are not tax-deductible, but all distributions from the IRA are tax-free. In fact, with a Roth IRA, you can take qualified tax-free distributions as soon as five years after your first contribution. Qualified distributions include those:
- For first-time home buyer expenses, up to $10,000
- After reaching age 59 1/2
- In the event of death or disability
And, with the Roth IRA, you no longer have to take a minimum distribution when you reach age 70 1/2.
Singles earning less than $118,000 per year, or couples earning less than $186,000 annually, can contribute up to $5,500 per year (including contributions to other IRAs); those contributions phase out at higher income levels.
To enable older participants to “catch up” with their retirement savings, individuals 50 and older can contribute $6,500 per year.
Is the Roth IRA right for you? Should you roll your existing IRAs into Roth IRAs? As a general rule, the Roth IRAs’ tax-deferred compounding benefits younger workers most, but ask your tax advisor for advice about your specific situation.