Consider the benefits and limits associated with making post-tax contributions to an individual retirement account.
Thinking about opening or contributing to a Roth IRA? Learn more about the benefits of this type of retirement account and whether you may be eligible to contribute.
The key benefits of Roth IRAs include:
All distributions from the account can be tax-free. Although contributions to a Roth IRA are not tax-deductible, earnings grow free of taxes. When you reach age 59 1/2, if the Roth IRA has been in place for at least five years, any withdrawal is tax-free. Avoiding the tax bite at the time of withdrawal in retirement can be attractive – particularly for investors who anticipate having a higher marginal income tax rate than they do at the time of contribution.
No required minimum distributions. While distributions from a traditional IRA must begin upon reaching age 70 1/2, there are no similar requirements for a Roth IRA.
No age limit on contributions. Contributions to a traditional IRA must cease at age 70 1/2, but you can continue contributing to a Roth IRA as long as you have earned income.
Withdrawals may be made penalty-free for a first-time home purchase. As with a traditional IRA, you can withdraw funds from your Roth IRA (up to a lifetime maximum of $10,000) to make a down payment on a first-time home purchase. A first-time homebuyer is defined as someone who has not owned a home for two years prior to the purchase of the new home.
In 2019, an individual may contribute up to $6,000 to a Roth IRA (less any contribution made to a traditional IRA for that year). People 50 and over can contribute an additional $1,000 for a total of $7,000.
The contribution limit above is available to single individuals with a modified adjusted growth income (AGI) of less than $122,000, or to married individuals filing joint returns with modified AGIs of less than $193,000. For single filers, the allowed contribution is phased out for modified AGIs between $122,000 and $137,000. For married individuals, the allowed contribution is phased out for modified AGIs between $193,000 and $203,000. No contribution is allowed if an individual is married and files separately, unless modified AGI is less than $10,000.
Your financial advisor can answer any questions you may have about the features and benefits of IRAs and help determine which type may be appropriate for addressing your retirement needs.
Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. While familiar with the tax provisions of the issues presented herein, Raymond James financial advisors are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional.