What Is A Roth IRA?
For a lot of people that are planning their retirement, they open a Roth IRA account.
The Roth IRA was created in 1997 when Congress passed the Taxpayers Relief Act. The Taxpayers Relief Act was designed to encourage working Americans to save money for retirement.
There is no age limit on contributions, so anybody can open one of these accounts. Roth IRA’S can be opened through an independent brokerage service, or through your bank.
With a Roth IRA, the earnings on any investment grow tax free. Your distributions on the account go untaxed as well. What does this mean? When you withdraw your money at retirement age, the money is not taxed by the IRS on this income. A Roth IRA lets you withdraw any contributions you make, at any time with no penalties and they are tax free. This does not apply to withdrawing earnings.
Most Americans qualify for a Roth IRA. It depends on your tax filing status and your income. Currently single taxpayers are able to contribute the maximum amount that is allowed into their Roth IRA, if their annual gross adjusted income (AGI) is less than $95,000. If you make more than $95,000 (up to $110,000), you are still able to contribute, but at a reduced maximum. If your AIG is over $110,000 you do not qualify for a Roth IRA.
If you are married and file taxes jointly, the limits are $150,000 for maximum contributions, and $160,000 for reduced contributions. Any amount over that, disqualifies you. If you are married, but file separate tax returns you do not qualify for a Roth IRA.
Retirement can be scary. A Roth IRA is a great way to start preparing for retirement.