Understanding Roth IRA Basics
A Roth Individual Retirement Account (IRA) offers tax-free growth and tax-free withdrawals in retirement. Unlike traditional IRAs, contributions are made with after-tax dollars and aren't tax-deductible.
Eligibility and Income Limits
Not everyone can contribute to a Roth IRA. Eligibility depends on your income level, with phase-out ranges adjusting annually. For 2023, the limit starts at $129,000 for singles.
Contribution Limits and Deadlines
For 2023, the maximum contribution is $6,500, or $7,500 if you're 50 or older. Contributions can be made until Tax Day of the following year.
Unique Withdrawal Flexibility
Contributions (but not earnings) can be withdrawn from a Roth IRA at any time, tax and penalty-free. This is not the case with traditional IRAs.
No Required Minimum Distributions
Roth IRAs don't require minimum distributions at any age, unlike traditional IRAs which mandate withdrawals starting at age 72. This makes Roth IRAs excellent wealth transfer vehicles.
Funding Methods Diversified
Roth IRAs can be funded through regular contributions, spousal IRA contributions, transfers, rollovers, and conversions. Roth conversions can strategically lower lifetime tax liability.
Roth IRA Estate Planning
Inheritors of Roth IRAs benefit from tax-free distributions, though they're now subject to a 10-year withdrawal rule due to the SECURE Act. This can impact estate planning strategies.
Are Roth IRA contributions tax-deductible?
Yes, they are tax-deductible.
No, they're made with after-tax dollars.
Only partially tax-deductible.
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