The Roth individual retirement account (IRA) has skyrocketed in popularity, with Americans looking to stash money away for retirement. As of 2023, 24.3% of U.S. households (31.9 million households) owned a Roth IRA, and it remains the second most heavily used type of IRA behind a traditional IRA.

The 澳洲幸运5官方开奖结果体彩网:Tax Cut and Jobs Act (TCJA), passed in late 2017, also provided a boost for Roths: The income tax rates that the act lowered are set to revert to higher levels in 2026. Since Roth IRAs require you to pay taxes on contributions up front but none on distributions, they work well for people expecting to be in a higher tax bracket once they retire. This is because you 👍withdraw funds at a typically higher income bracket but don't have 🥃to pay tax on them since you paid tax on them when you contributed them.

Rot♓h Individual Retirement Accounts (IRAs): An Overview

Although the Roth IRA shares many similarities with the 澳洲幸运5官方开奖结果体彩网:traditional IRA, there are a few key differences between the two retirement accounts. Contributions to a Roth IRA are not tax-deductible upfront. You pay your contributions out of your current after-tax income. On the other han﷽d, you can withdraw your ♒contribution at any time without penalty.

Once you start taking 澳洲幸运5官方开奖结果体彩网:qualified distributions from a Roth IRA, you are not taxed on the earnings that your contributions made over the years. A Roth IRA accrues earnings on a tax-deferred basis, and those earnings will be tax-free.

There is no age limit for making Roth IRA contributions as long as you have earned income. Finally, Roth IRAs do not have 澳洲幸运5官方开奖结果体彩꧅网:required minimum distributions (RMDs) during your lifetime.

IRAs are popular investment vehicles, especially among young Americans who appreciate the flexibility of withdrawing their retirement contributions with no penalty. Also, young investors are just starting out their careers and are typically in lower 澳洲幸运5官方开奖结果体彩网:tax brackets. As such, converting to a traditional IRA for immediate tax deductions is more advantageous once they become higher earners.

Making Roth IRA Contributions

As we mentioned earlier, no matter how old you are, you can continue to contribute to your Roth IRA as long as you earn income—whether you receive a salary as a staff employee or 1099 income for contract work.

This provision makes Roth IRAs ideal for semi-retirees who keep working a few days a week at the old firm or retirees who keep their hand in doing occasion🧔al consulting or fr🔯eelance jobs.

Contribution Limits

The maximum Roth contribution for 2024 and 2025 is $7,000, plus $1,000 if you’re 50 or older by the end of the year. This $1,000 addition is called a 澳洲幸运5官方开奖结果体彩网:catch-up contribution.

Contributions must be made by the tax filing deadline of the following year, including any extensions. For example, you can make a contribution to your 2024 IRAs through April 15, 2025, or later if you file for an extension.

Income Limits

Roth IRAs have income limits that affect whether and how much you can contri🤪bute. Certain income levels can sti꧃ll make partial contributions to a Roth IRA, while higher income levels are excluded from contributing.

• Taxpayers earning below the lowest figures in the table below, corresponding to their filing status, may make full Roth IRA contributions.
• Taxpayers earning within the figures in the table below corresponding to their filing status may make partial Roth IRA contributions.
• Taxpayers earning more than the figures in the table below corresponding to their fling status are not permitted to make Roth IRA contributions.

You can’t pay money into a Roth IRA if you don’t have 澳洲幸运5官方开奖结果体彩网:earned income. However, your spouse can establish and fund a Roth IRA on your behalf if they still have earned income. Because IRAs cannot be held as joint accounts, the spousal Roth IRA must be i🍸n your name even if your spouse is making the contributions.

Taking Roth IRA Distributions

You canꦰ withdraw contri꧋butions from your Roth IRA anytime and for any reason without taxes or penalties. However, you can’t withdraw the earnings in your Roth IRA until you’re at least 59½ years old and the account has been open for five years or longer.

If you tap into earnings before this time, you likely will have to pay taxes and penalties on the withdrawals. Withdrawals are typ꧅ically considered to come first from contributions. So, you won’t be taking out earnings until you’ve withdrawn an amount equal to your total contributions.

There are, however, some exceptions to the taxes and penalties. In certain cases, you’re allowed to take tax- and penalty-free withdrawals (qualified distributions) from your Roth IRA earnings before you turn 59½.

For example, if you use the money to buy, build, or rebuild a first home for yourself or a family member, it would be considered a qualified distribution. This is limited to $10,000 per lifetime. You also may take distributions for 澳洲幸运5官方开奖结果体彩网:qualified high♔er education expenses or if you become disabled.

On the other hand, if you take a 澳洲幸运5官方开奖结果体彩网:non-qualified distribution that does not meet these requirements, you’ll have to cough up income taxes and a 10% early distribution penalty. The source of a non-qualified distribution determines the applicable tax treatment.

Leaving a Roth IRA Inheritance

Because there are no RMDs with a Roth IRA during your lifetime, you can leave it all to your heirs if you don’t need the money for livi༒ng expenses.

Because you’ve prepaid the taxes on the Roth IRA, your beneficiaries won’t be hit with a tax bill when they receive income fr🎃om the account. This allows you to leave a stream of tax-free income to your children, grandchildren, or other heirs.

While non-spouse heirs must take RMDs on inherited Roth IRAs, they won’t be taxed on withdrawals as long as they comply with the 澳洲幸运5官方开奖结果体彩网:RMD rules. Again, this differs from traditional IRAs, where RMDs are taxable for beneficiaries, just as they are for the original owners.

The Bottom Line

There’s no question that a Roth IRA offers some val꧙uable benefits after retirement. You not only can take tax-free withdrawals from a Roth but alsoꦛ have maximum flexibility for when and how much you withdraw.

This means that you can leave a nice tax-free bundle behind for your h♓eirs or stagger distributions depending on how much income you are getting from other sources suꦅch as Social Security, work, or other investments.

Roth IRAs can be opene🌊d at most brokerages, but some provide better access and options than others. If you’re shopping around, check out Investopedia’s list of the best brokers for IRAs and Roth IRAs.