Thanks to their tax benefits, Roth individual retirement accounts (IRAs) can be a great way to save for retirement. Unfortunately, too few people understand just how Roth IRAs are structured or fully grasp the rules that govern their operations. Here’s an easy-to-understand breakdown of how a Roth IRA works, who can contribute to one, and other helpful insights to this appealing retirement savings vehicle.
- You (or your spouse) must have earned income to contribute to a Roth IRA.
- The money you contribute to your Roth IRA is not tax deductible.
- Qualified withdrawals are tax and penalty free. For a Roth IRA distribution to be qualified, it must be made at least five years after the year of your (the participant’s) first designated Roth contribution (counting the first year as part of the five) and is made on or after you reach age 59½, are disabled, or after your death.
- For 2025, you can contribute up to a maximum of $7,000 to your Roth IRA as long as you have earnings and meet the Roth IRA income limits. The amount is a maximum of $8,000 if you are age 50 or older. It is important to note that the annual contribution limit applies to all IRA contributions for the year — Roth and traditional. The annual limit does not apply to rollover contributions.
- If you want to make a contribution to a Roth IRA for 2025, your modified adjusted gross income (AGI) must be less than $165,000 if you are single or $246,000 if you are married filing jointly. You can make the maximum contribution if you have a modified AGI of less than $150,000 (single) or less than $236,000 (married filing jointly).
- You can contribute to your employer-provided retirement plan and to a Roth IRA once you meet eligibility requirements.
- Unlike a traditional IRA, you may continue to add to your Roth IRA after you reach age 70½, as long as you have earnings.
- 401(k) retirement plans, for example, require you to begin withdrawing money in the year you turn 73 years old. However, that’s not the case with a Roth IRA — you can let your Roth IRA continue to grow undisturbed and tax free for the rest of your life.
Remember, its important to discuss with an experienced financial professional what the best retirement savings option may be for you. Meet with the Emerj360 team if you’re ready learn more about your options that align with your retirement plan.
