Roth IRA Tax Rules
A Roth IRA is a special type of tax advantaged investment account designed to help people save money for retirement.
The primary tax advantage that comes from a Roth IRA is the ability to withdraw the money you have contributed. This money can be withdrawn income tax free as long as certain conditions are met. A Roth IRA account is a tax free investment that can help you get the most from your money.
You can open a Roth IRA at a bank that offers Roth IRA accounts. You make contributions to your Roth IRA with after tax income. You pay taxes on the money you contribute to a Roth IRA. Your contributions are then divided up among all of the investments you choose. You can change your Roth IRA’S asset locations at any time.
In order to make tax free withdrawals you have to have had your account for at least 5 years, and be at least 59 ½ years old. Withdrawals made before age 59 ½ can be subject to a 10% early withdrawal penalty. Some exceptions to this rule are if you need the money to purchase your first home, to pay college expenses for certain members of your immediate family, or to pay medical bills over 7.5% of your adjusted gross income (AGI). These withdrawals will be taxable income, but you will not be paying the 10% early withdrawal penalty.
Contribution limits for a Roth IRA are currently at $5,000 per year, and $6,000 if you over 50 years of age.