Roth IRA
Recommended if you:
- Want tax-free withdrawals after retirement
- Wish to have a federally-insured retirement program
- Have earned income from employment that you can invest
- Have a higher income which prohibits you from making a deductible contribution under a Traditional IRA
- Want an IRA that allows you to postpone distributions for as long as you like and allows you to continue using earned income to make contributions even after age 70 1/2
Important Facts
- Unlike the Traditional IRA, the Roth IRA contribution is not tax deductible.
- Earnings grow tax-deferred; if you do not make any withdrawals for at least five years, earnings become tax-free when you make a qualified withdrawal.
- Allowable contribution amounts are based on age and adjusted gross income.
- Early withdrawal penalties may apply.
Common Questions Regarding Roth IRAs
What Is a Roth IRA?
A Roth IRA is an individual retirement account that allows only nondeductible contributions but features tax-free withdrawals for certain distribution reasons after a five-year holding period.
The term "tax free" means free from federal income taxes.
Am I Eligible for a Roth IRA?
There are two requirements for eligibility to contribute to a Roth IRA: you must have compensation (or your spouse must have compensation) and your modified adjusted gross income (MAGI) cannot exceed certain limits (see tables below).
How Much Can I Contribute Each Year?