As a financial advisor, one of the most common questions I receive is about Roth IRAs. Many people are confused about what they are, how they work, and if they should consider opening one. Here’s what you need to know about Roth IRAs:

First and foremost, a Roth IRA is a type of retirement account that allows you to make contributions with after-tax dollars. This means that you won’t get a tax deduction for contributing to a Roth IRA, but the money you withdraw in retirement will be tax-free (as long as you follow the rules).

Another important thing to know is that there are income limits for contributing to a Roth IRA. In 2023, Roth IRAs are retirement accounts that allow contributions after tax but have income limits that affect how much one can contribute. The income limit for a full Roth IRA contribution in 2023 is $138,000 for single filers and heads of household and $218,000 for married couples filing jointly. The income limit for any Roth IRA contribution in 2023 is $153,000 for single filers and heads of household and $228,000 for married couples filing jointly. The Roth IRA contribution limit for 2023 is $6,500, or $7,500 for individuals age 50 or older, or if less, one’s taxable income.

One of the biggest benefits of a Roth IRA is that there are no required minimum distributions (RMDs) during your lifetime. This means that you can keep the money in the account for as long as you want, and continue to let it grow tax-free. This can be a great option for people who don’t need to rely on their retirement savings right away.

It’s also important to note that you can withdraw your contributions (not earnings) from a Roth IRA at any time, without penalty. However, if you withdraw earnings before age 59 1/2, you’ll have to pay taxes and a 10% penalty.

Overall, Roth IRAs can be a great option for people who want tax-free income in retirement, don’t need the tax deduction right now, and don’t want to worry about RMDs. It’s always a good idea to talk to a financial advisor to see if a Roth IRA is right for you. Sign up for our newsletter today!