A Roth IRA is an individual retirement account that offers the opportunity for tax-free income in retirement. Annual contributions are made on an after tax basis and are not tax deductible. All earnings inside the Roth IRA are federal tax-free when they are distributed according to IRS rules.
This is much different than a Traditional IRA, which taxes withdrawals. Contributions can be withdrawn any time you wish and there are no required minimum distributions after age 70½. If you are in a lower tax bracket today than you will be during retirement, a Roth IRA may be a smart choice.
Benefits of a Roth IRA
- Withdrawals of earnings are free from federal income tax, provided the Roth IRA has been in existence for five years and you are at least 59½.
- Contributions can be withdrawn anytime without federal income taxes or penalties.
- RMDs (Required Minimum Distribution) are not required.
- Distributions for your beneficiaries are tax-free
If you file a joint return, you may be able to contribute to an IRA even if you did not have taxable compensation as long as your spouse did. The amount of your combined contributions can’t be more than the taxable compensation reported on your joint return. If neither spouse participated in a retirement plan at work, all of your contributions will be deductible.
Can I contribute to an IRA if I participate in a retirement plan at work?
You can contribute to a traditional or Roth IRA whether or not you participate in another retirement plan through your employer or business. However, you might not be able to deduct all of your traditional IRA contributions if you or your spouse participates in another retirement plan at work. Roth IRA contributions might be limited if your income exceeds a certain level.