Roth IRA, named after Senator William Roth who introduced it as part of the Taxpayer Relief Act in 1997, is an individual retirement account (IRA) which allows qualified withdrawals on a tax free basis. A Roth IRA is funded with after-tax dollars but contribution is not tax-deductible.
- A Roth IRA is a retirement account where contributor pay taxes on money going into the account. The future withdrawals from the Roth IRA are tax-free.
- A Roth IRA is best for contributor who think that his/her taxes will be higher in retirement.
- If the contributor make too much money, he/she can not contribute to a Roth IRA. The income limit for singles are $140,000 and the income limit married couples are $208,000. IRS Publication 590-A provides a worksheet to figure out MAGI and the allowable contribution amounts.
- Contributions to a Roth IRA can be made up until tax filing day of the following year.
- Only earned income, includes wages, salaries, bonuses, commissions, tips and self-employment net earnings, can be contributed to a Roth IRA.
- The maximum contribution for 2021 is $6,000. For contributor who is age 52 and above, the maximum contribution is $7,000.
- No age limit for making Roth IRA contributions.
- A contributor can withdraw contributions tax-free at any time and for any reason from a Roth IRA.
- A Roth IRA account holder can maintain the account indefinitely and no required distributions during his/her lifetime.
In summary, Roth IRAs offer many of the advantages of regular IRAs but with more flexibility. Roth IRAs, which provide the opportunity to create tax-free savings account, are best for people who likely to need tax relief later on.
Check out the IRS website for Publication 590-A as shown below.
ROTH IRA is better for me than Regular IRA.
ROTH IRA is good for me for saving tax in the future.
Roth IRA is better than Traditional IRA.
Love ROTH IRA better than standard IRA.
I prefer RoTH IRA over traditional IRA because of not paying tax when withdrawing during retirement age.