A Roth individual retirement account (IRA) is a useful retirement account for millennials who are decades away from retirement. A Roth individual retirement account (IRA) is a tax-advantaged account that millennials can fund using money they've already paid taxes on (澳洲幸运5官方开奖结果体彩网:after-tax dollars). Since many people are still establishing their careers, a Roth IRA allows you to enjoy many years of tax-free earnings growth and tax-free income in retirement. Conversely, a 澳洲幸运5官方开奖结果体彩网:traditional IRA taxes the income when you withdraw it ♑in retirement at a time when you might be in a higher tax bracket.

After-Tax Contributions and Tax-Free Earnings

The 澳洲幸运5官方开奖结果体彩网:Internal Revenue Service (IRS) sets annual limits on how much you can contribute to a Roth or 澳洲幸运5官方开奖结果体彩网:traditional IRA. For 2025, the contribution limit remains $7,000 for the year. However, if you're 50 years old or older, you can contribute an additional $1,000 as a 澳洲幸运5官方开奖结果体彩网:catch-up contribution. You can make contrib🐼utions for 15 months—from January 1 to the date you file your taxes (no later than mid-April) the following year.

Your contributions to a Roth IRA are made with after-tax income, meaning income you've already paid taxes on. In other words, there is no upfront tax deduction in the amount of your contribution, like with a traditional IRA. However, because a Roth IRA is a 澳洲幸运5官方开奖结果体彩网:tax-advantaged account, your contributions and capital gains grow tax-free.

You Can Contribute at Any Age

One of the great things about a Roth IRA is that you can contribute at any age as long as you have taxable income. This can make them part of an effective retirement strategy since you can start investing when you're young and continue funding the account right up until retirement. Also, if you're age 50 or older, you can make an additional catch-up contribution of up to $1,000 each year to fund your Roth IRA to the max.

Withdrawalꦗs 🐻in Retirement Are Tax-free, and No RMDs

As long as you've held the Roth IRA for five years and you're age 59½ or older, you can begin 澳洲幸运5官方开奖结🍰果体彩网:withdrawing from the account tax-free. If you'd like to take out money before age 59½, you can do so tax-free, but only on the contributions you made. The capital gains must remain in the account until you reach 59½, or the IRS will levy a significant penalty.

Conversely, with a traditional IRA, your withdrawals are taxable in retirement, and you typically cannot withdraw funds early without penalty. Also, with traditional IRAs, you must take 澳𓆏洲幸运5官方开🐽奖结果体彩网:required minimum distributions (RMDs) in retirement, which represents a minimum amount of money you must withdraw after a certain age, or you'll face a tax penalty.

However, Roth IRAs do not require you to take distributions from the account once you retire, allowing you to have more control over when to withdraw your funds.

You May Be Eligible For a Saver's Tax Credit

The Saver’s Tax Credit is designed to encourage people to save for retirement by offering a credit based on how much they contributed to a Roth IRA (or traditional IRA). Depending on your income and contribution amount, the Saver's Tax Credit is 10%, 20%, or 50% of your contribution. For 2025, the maximum credit is $1,000 ($2,000 if ജyou're married filing jointly).

To qualify for the Saver's Tax Credit, you must be over 18 and not a full-time student. For the 2024 tax year, your income limit must fall below $76,500 if you're married filing jointly, $57,375 if you're a head of household, or $38,250 if you're single or married but filing separately.

You Can Use a Backdoor Roth IRA

Millennials who earn too much money to fund a Roth IRA can get around those limits with a 澳洲幸运5官方开奖结果体彩网:backdoor Roth IRA. This maneuver allows you to contribute to a Roth by making a nondeductible traditional IRA contribution and immediately converting the account to a Roth IRA. If it sounds a little tꦐricky, it's because it is.

You will have tax implications for the year you open and convert the account, but from then on, your funds will grow tax-free in the Roth IRA. Since you have to open and fund a traditional IRA, you will pay taxes on any earnings the account accrues before you convert it. However, you'll only be liable for paying taxes on the account for the conversion year.

A 澳洲幸运5官方开奖结果体彩网:backdoor Roth might seem like a lot of effort, but there are benefits, too. Since high earners are usually excluded from contributing to a Roth, a backdoor Roth makes tax-free growth 💜possible.

To 澳洲幸运5官方开奖结果体彩网:establish a backdoor Roth, you could start by 澳洲幸运5官方开奖结果体彩网:opening a traditional IRA. Next, you would typically fund the account with a nondeductible contribution—meaning you receive no upfront tax deduction—to the maximum amount allowed for the year. Then, immediately convert the fund to a Roth IRA before the cash contribution is invested. You will need to fill out when filing your taxes for the year to complete the maneuver. Please consult a tax professional before attempting a 澳洲幸运5官方开奖结果体彩网:backdoor Roth to ensure it's the best strategy for you.

The Bottom Line

A Roth IRA can be a great investment option for millennials, who have decades before retirement and can benefit from tax-free growth. Plus, unlike a traditional IRA, millennials won't pay taxes on withdrawals made in retirement since your contributions are made with after-tax income (when most millennials are in a lower tax bracket). If you anticipate being in a higher tax bracket when you retire, a Roth IRA may make financial sense.