Roth IRAs are used by millions to build wealth over time with tax-free growth. Yes, you read that correctly tax-free growth (if you follow the rules!). Simply stated, this means the capital gains are not taxed annually and you do not pay any taxes when you withdraw funds from a Roth unlike your traditional IRA. Does it sound to good to be true? Read on.
Roth accounts have both income limits and annual contribution limits. You must have earned income during the year, and generally couples making over $203K are not allowed to participate in the program unless you use a strategy called the backdoor ROTH. The current annual contribution limit is $6,000 ($7,000 if you are over age 50). It is not too late to contribute to your ROTH IRA for the 2019 tax year; we have until the July 15th tax filing deadline.
Although the purpose of a ROTH is to save for retirement, you can withdraw your contributions at any time, tax free and without penalty. Notice I referenced contributions at any time – not your earnings. If you withdraw any of your earnings before age 59 ½, you’ll trigger a tax bill on the money, plus you’ll pay a 10% penalty. Of course, it is best to leave your money in the account to grow for your retirement, but it is nice to know the ROTH is there for you if you need it.
Please reach out to us if you have additional questions or want to establish a ROTH IRA, we are happy to help!
Information in this material is for general information only and not intended as investment, tax or legal advice. Please consult the appropriate professionals for specific information regarding your individual situation prior to making any financial decision.
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