What is a Roth IRA?
A Roth IRA offers you the potential for tax-free distributions at retirement. While you must have earned income to contribute to a Roth, and contributions are not tax deductible, you won’t pay federal taxes on dividends or capital gains you have earned if you have a qualified distribution.
Roth IRA Benefits
A Roth IRA is an attractive choice to many investors.
- Tax-free Earnings - You can begin taking tax-free and penalty-free withdrawals of Roth earnings at age 59 ½ if your account is at least five years old.
- Save Taxes on Investment Income - A Roth IRA allows you to save taxes on your investments over the years by sheltering annual growth and investment income.
- Contribution Opportunities - Contribute up to the maximum of $5,500 per year. If you’re 50 or older, you can make an additional $1,000 catch-up contribution.
- Spousal Contributions - Depending on your annual Adjusted Gross Income (AGI), you may make a nondeductible contribution of up to $5,500 to a Roth IRA for a non-working spouse, subject to joint-filer tax and earned income limits.
- Early Withdrawal Option - You may take nontaxable withdrawals before age 59½ if the Roth IRA is held for at least five years and you meet certain distribution guidelines. Otherwise, an early withdrawal before age 59 ½ may be subject to taxes and a 10 percent penalty.
Roth IRA Contribution Limits
|Year||Filing Status||Roth IRA Adjusted Gross Income Limits|
|Married filing single||$10,000|
Traditional vs Roth IRA
|Feature||Traditional IRA||Roth IRA|
|Contribution Limits||100 percent of earned income. Up to:
||100 percent of earned income. Up to:
|Catch-up Contribution Provision||Up to $1,000 for individuals age 50 and over.||Up to $1,000 for individuals age 50 and over.|
|Eligibility||Under age 70½ and employed||Any age when single and joint tax filers fall under certain AGI limits.|
|Deductibility||Fully deductible if not an active participant in a qualified retirement plan (certain AGI limits may apply to joint filers). Reducing deduction available for active participants in qualified retirement.||Nondeductible.|
* A nonqualified early withdrawal before age 59 ½ may be subjected to tax and a 10 percent penalty as set by federal law.