Would you like to not have to pay taxes on your retirement income? DO you make less than $122,000 in adjusted gross income a year? Well, if you answered yes to both questions, then let me tell you a little something about the Roth IRA.
The Roth IRA is an individual retirement account that you can contribute up to $6,000 annually to and, if you’re over 50 years old, an additional $1,000 on top of that.
All of the gains in a Roth IRA grow tax free and when you pull the money out of the account at retirement, you don’t have to pay any taxes on it. So, if you think your taxes might higher in the future than they are now, it might be a good idea to put some money into a Roth IRA.
There are some rules with this, though. For one, like I hinted in the second question above, there are limitations placed if you as an individual make over $122,000 in adjusted gross income annually. If you are filing jointly, then this limit is $193,000 in adjusted gross income annually. If you make over these amounts, though, there is still some home. You can still contribute to a Roth IRA with a limited contribution if you make under $137,000 individually a year or under $203,000 a year when filing jointly.
Accidentally contributing too much money to a Roth with lead to a penalty and this can happen easily if you have multiple Roth IRA accounts and lose track of them. If you catch this before you do your taxes, though, then you can remove the amount from your account. If not, then you will have to pay a 6% penalty on money that you really have already paid taxes on.
Lastly, you cannot withdraw any of your gains from your Roth IRA until you are 59 ½ years old. You can, however, withdraw any money that you put in there tax-free, as this money has already been taxed. I wouldn’t recommend it, but if you were in need of it then you wouldn’t have to pay for any of the money you put in, which offers some great flexibility.
Bottom Line
It might be smart to get started on your investment journey using a Roth IRA since the money that you make is tax-free. With enough time compounding yearly, you can make yourself a good amount of money for retirement. You just want to make sure that you don’t get ahead of yourself and put too much in there, or else you might have a problem with the tax man. Remember that any little bit counts towards your retirement, so don’t get discouraged when you’re putting a small bit of your cash in. The acorn eventually becomes a tree!
If you would like to learn more on Roth IRAs check out the IRS website for more info on Roth IRAs. An if you would like to learn what investments you should put in your Roth I would check out The Only Investment Guide You’ll Ever Need
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