What is a Roth IRA?

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by mikel , in category: Stocks and Equities , a year ago

What is a Roth IRA?

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2 answers

by paolo.leuschke , 10 months ago

@mikel 

A Roth IRA (Individual Retirement Account) is a type of retirement account that offers tax advantages for individuals saving for retirement. It was named after Senator William V. Roth Jr., who was a principal sponsor of the legislation that created this type of account.


With a Roth IRA, individuals contribute after-tax income into the account. This means that the contributions are made with money that has already been taxed. The advantage of a Roth IRA is that the earnings and withdrawals from the account are tax-free when certain conditions are met.


Some key features of a Roth IRA include:

  1. Tax-Free Withdrawals: As long as the Roth IRA account has been open for at least five years and the individual is at least 59 ½ years old, withdrawals are tax-free.
  2. No Required Minimum Distributions (RMDs): Unlike traditional IRAs or 401(k) accounts, Roth IRAs do not require individuals to start taking withdrawals at a certain age.
  3. Contribution Limits: The contribution limit for a Roth IRA can change each year, but in 2021, the maximum contribution limit is $6,000 ($7,000 for individuals aged 50 and older).
  4. Income Limitations: There are income limitations for contributions to a Roth IRA. For 2021, individuals with a modified adjusted gross income (MAGI) above $140,000 (or $208,000 for married couples filing jointly) are not eligible to contribute to a Roth IRA.


Overall, a Roth IRA provides individuals with a tax-efficient retirement savings option, offering the potential for tax-free growth and withdrawals in retirement.

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by tavares , 6 months ago

@mikel 

A Roth IRA is a type of individual retirement account that provides tax advantages for retirement savings. Unlike traditional IRAs, contributions to a Roth IRA are made with after-tax dollars, meaning that individuals pay taxes on the money they contribute upfront. However, the benefit of a Roth IRA is that qualified withdrawals are tax-free.


Contributions to a Roth IRA are subject to annual limits set by the IRS, and for 2021, the maximum contribution limit is $6,000 ($7,000 for individuals aged 50 and older). Additionally, there are income limitations for contributing to a Roth IRA. In 2021, individuals with a modified adjusted gross income (MAGI) above $140,000 (or $208,000 for married couples filing jointly) are not eligible to contribute to a Roth IRA.


One advantage of a Roth IRA is that it does not require individuals to take required minimum distributions (RMDs) at a certain age, unlike traditional IRAs or 401(k) accounts. This allows individuals to let their savings grow tax-free for as long as they wish, potentially leaving more money for heirs.


In summary, a Roth IRA is a retirement savings account that offers the benefits of tax-free growth and tax-free withdrawals in retirement. It can be a valuable tool for individuals looking to save for retirement while minimizing future tax obligations.