A Roth IRA is a type of IRA account for retirement savings. The advantages of a Roth IRA include no withdrawal requirements and tax-free qualified withdrawals after age 59½. To be eligible for a Roth IRA, you must have earned income and meet adjusted gross income requirements.* You can begin taking tax-free withdrawals after 59½ and continue making contributions after age 70½.
What makes a Roth different than a traditional IRA?
The main difference between a Roth IRA and Traditional IRA is the way they are taxed. Your Roth IRA contributions are not tax deductible, but your qualified withdrawals in retirement will be tax-free.
Traditional IRA contributions may be tax deductible. Anyone with earned income can contribute—no age limit (RMD rules still apply) on contributions beginning with the tax year 2020, provided you have earned income. Pay no taxes until the money is withdrawn. Starting with the tax year 2020, you must start making withdrawals by age 72 if you did not attain age 70½ by December 31, 2019.
Roth IRA contributions are not tax deductible. Eligibility is based on how much you earn. Contribute at any age. Never pay taxes on qualified withdrawals after age 59 ½. Withdrawals are never required.
Is a Roth IRA right for me?
You've likely heard a lot of buzz over the years about the other primary type of IRA—Roth IRAs. That's because Roth accounts offer the potential for tax-free growth. Unlike traditional IRAs, which provide the immediate benefit of tax-deductible contributions while you're working (if you meet the requirements mentioned above), the main appeal of Roth IRAs is the long-term benefit of tax-free future income. But does a Roth IRA make sense for your retirement? If so, are you eligible to open one, or should you convert your existing retirement accounts to a Roth? As you might guess, the answer depends on your personal situation. But here are some considerations that may help you decide if a Roth IRA is right for you.
Before opening any account, it is wise to consult with a Investment Advisor to ensure this decision is in your best interest. If you are eligible to contribute, have earned income, already maximize your participation in an employer-sponsored retirement plan [such as a 401(k) or 403(b)], and have the ability to put aside additional savings into a retirement account, a Roth IRA could be right for you.
The potential benefits:
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Investment advisory services are made available through NFI Advisors, Inc., a Registered Investment Advisor.
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