What is a Roth IRA?

What is a Roth IRA?

What is a Roth IRA?

by Kristin P. Sinclair – A Accu Tax – September 19, 2018

A Roth IRA is a special kind of Individual Retirement Account that may allow your money to grow tax-free. You fund a Roth with after-tax or post-tax dollars – meaning you pay current income taxes on your contribution. In return for no up-front tax break, your money grows and grows tax free. Then you should qualify to withdraw your Roth IRA funds at retirement and pay absolutely no taxes !

That’s right, every penny goes straight into your pocket. This may be especially important in your early retirement years. Taking money from your Roth IRA should not impact the taxability of your Social Security Income.

In summary there are two big differences between your Roth IRA and your Traditional IRA. Your Traditional IRA allows you a current income tax deduction that your Roth IRA does not allow. Your Traditional IRA funds are taxable when withdrawn; however, your Roth IRA withdrawals should be tax-free !

So do you Roth IRA or do you Traditional IRA ? Well actually in any given tax year you may be eligible to do both. You could put 25% or 50% of your eligible deductible contribution into your Roth IRA, and then put the balance into your Traditional IRA.


Are You Eligible ?

First things first. Roth IRAs have income eligibility limits, so if you make too much money, you can’t contribute to a Roth IRA. But with a median household income of about $50,000, most Americans qualify for Roth IRA contributions. (If your income is too high, you can convert some or all of the assets in your traditional IRA to a Roth IRA, but you’ll have to pay taxes on the entire amount you convert. For details, see more at IRS.gov.

Depending upon your tax-filing status, income, and your age, for tax year 2017 you can contribute up to $5,500. Those age 50 plus can contribute up to $6,500 in a Roth IRA. Your Modified Adjusted Gross Income (MAGI) may reduce the above maximums, and you should consult your tax advisor for your specific situation.


Updated by Kristin P. Sinclair: A Accu Tax

in Charleston SC and Rock Hill SC

September 19, 2018     (803)329-0615

KPS: More information is available at IRS.gov.

See Publication 590-A and Publication 590-B.