What is a Roth IRA?
Like other retirement savings plans, the Roth IRA allows you to invest money that you’ll use when you retire. Your money accumulates tax-free and remains that way until you use it. The Roth IRA was established as a part of the Taxpayer Relief Act of 1997 and has been available to investors since 1998.
This new type of IRA is like traditional IRAs in that there is a maximum contribution of up to $2000 per year that can be made to a Roth IRA. Unlike traditional IRAs, no portion of contributions to a Roth IRA can be deducted from taxable income. However, investment earnings within a Roth IRA are not subject to income tax, and withdrawals from the Roth IRA are entirely free of federal taxation or tax penalties under certain conditions.
The Taxpayer Relief Act of 1997 created the Roth IRA, which allows tax-free withdrawals. Contributions to a Roth IRA are not deductible and the maximum annual contribution is the lesser of 100% of compensation or $3,000. Non-working spouses may also contribute up to $3,000 to a Roth IRA. For individuals age 50+, contributions may be increased by $500. Taxpayers with joint adjusted gross income under $150,000 (under $95,000 for single taxpayers) may make full Roth IRA contributions. Contributions may be made beyond age 70½ and qualified distributions from a Roth IRA are tax-free, subject to IRS limitations. There are no required minimum distributions on Roth IRAs.
