A Roth IRA is an individual retirement account (IRA) that allows qualified withdrawals on a tax-free basis provided certain conditions are satisfied. Established in 1997, it was named after William Roth, a former Delaware Senator.
Roth IRAs are similar to traditional IRAs, with the biggest distinction between the two being how they’re taxed. Roth IRAs are funded with after-tax dollars; the contributions are not tax-deductible. But once you start withdrawing funds, the money is tax-free.
Things To Know:
- A Roth IRA is a special retirement account where you pay taxes on money going into your account, and then all future withdrawals are tax-free.
- Roth IRAs are best when you think your taxes will be higher in retirement than they are right now.
- You can’t contribute to a Roth IRA if you make too much money. In 2021, the limit for singles is $140,000. For married couples, the limit is $208,000.
- The amount you can contribute changes periodically. In 2021, the contribution limit is $6,000 a year unless you are age 50 or older—in which case, you can deposit up to $7,000.
- Almost all brokerage firms, both physical and online, offer a Roth IRA. So do most banks and investment companies.