What are some benefits of a Roth IRA?
A Roth IRA is a special non-deductible IRA. Even though you contribute to the account with your after-tax dollars, all withdrawals are tax free if you meet the following conditions: you are at least 59 and a half and an account has been in existence for at least five years. In other words, you will never pay any taxes on earnings that your IRA fund will generate after turning 59 and a half. There are no mandatory minimum distributions at age 70 and a half, as in the case of a traditional IRA plan. This feature allows passing on more savings to your beneficiaries if you wish to do so. You can withdraw money from your Roth IRA at any time without paying taxes up to the amount of your contributions. Dipping into the earnings will have no tax consequences. There is no age limit on contributions. Every person with earned income, within limits established by the IRS (in general, your modified adjusted gross income must be less than $110,000), is eligible to open a Roth IRA. For this purpose, the IRS considers as earned income wages, salaries and money made from being self-employed. Other income is considered passive (dividends, interest, rental properties etc.) and cannot be used to fund a Roth Individual Retirement Account.
Need Professional Help?
If you need help with "Retirement Planning" or have other tax questions, we can help you find a local licensed tax preparer for a free, no-obligation consultation.