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A Roth IRA, or Individual Retirement Account, is a type of retirement savings account that offers tax-free growth and withdrawals during retirement. It was introduced in 1997 as part of the Taxpayer Relief Act and is named after its chief legislative sponsor, Senator William Roth.

1. Eligibility: Anyone with earned income can contribute to a Roth IRA, regardless of age. However, there are income limits for eligibility. In 2024, those limits are $153,000 for single filers and $228,000 for married couples filing jointly. If your income exceeds these limits, you may not be able to contribute directly to a Roth IRA, but you may still be eligible for a backdoor Roth IRA. Regardless of whether or not you participate in a plan offered by your employer, you have the option to contribute to a Traditional IRA. If your annual income meets the eligibility criteria, you may also have the opportunity to contribute to a Roth IRA. However, the total amount you can contribute to both types of IRAs must be equal to the lesser of 100% of your earned income or the annual contribution limit (which will be $6,500 for 2023 and $7,000 for 2024). This combined contribution amount is subject to certain restrictions and limits.

2. Contributions: The maximum amount that can be contributed to a Roth IRA in 2024 is $7,000 for individuals under 50 and $8,000 for individuals 50 and over (2023 Under age 50, $6,500 Age 50 and older, $7,500). These limits are subject to change based on cost-of-living adjustments. Contributions to a Roth IRA are made with post-tax income, meaning you do not get a tax deduction for the contribution. However, these contributions grow tax-free and can be withdrawn tax-free during retirement.

3. Investment options: A Roth IRA can be invested in a variety of options, such as stocks, bonds, mutual funds, and exchange-traded funds (ETFs). This allows for diversification and potential for higher returns on investment.

4. Tax benefits: The main advantage of a Roth IRA is that all earnings and withdrawals are tax-free during retirement. This is different from a Traditional IRA, where contributions are tax-deductible, but withdrawals are taxed. Additionally, Roth IRAs are not subject to required minimum distributions (RMDs) like Traditional IRAs, meaning you can leave the funds in the account to grow for as long as you want.

5. Withdrawals: Contributions to a Roth IRA can be withdrawn at any time without penalty or taxes. However, earnings on those contributions can only be withdrawn tax-free after age 59 ½ and after the account has been open for at least five years. Early withdrawals of earnings may incur taxes and penalties.

6. Conversion and rollover: Those with Traditional IRAs or employer-sponsored retirement plans can convert or roll over these funds into a Roth IRA. This allows for tax-free growth and withdrawals in retirement.

7. Inherited Roth IRAs: If you inherit a Roth IRA from a spouse, you can treat it as your own and continue to make contributions and take distributions. Non-spouse beneficiaries must take required minimum distributions (RMDs) based on their own life expectancy.

8. Estate planning: Roth IRAs can be used as part of estate planning to pass on tax-free assets to beneficiaries.

9. Limitations: There are limitations on contributions to a Roth IRA based on income, as mentioned earlier. Additionally, there are penalties for early withdrawals of earnings and a limit on the amount that can be contributed each year.

10. Advantages: The main advantages of a Roth IRA are tax-free growth and withdrawals, no required minimum distributions, and flexibility in contributions and withdrawals. It is a great option for those who expect to be in a higher tax bracket during retirement or want to leave tax-free assets to their heirs.

In conclusion, a Roth IRA is a valuable retirement savings tool that offers tax-free growth and withdrawals, flexibility, and estate planning benefits. It is important to understand the eligibility requirements, contribution limits, investment options, and tax implications before opening a Roth IRA. It is recommended to consult a financial advisor to determine if a Roth IRA is the right retirement savings option for your individual financial goals and situation.

Calculating your MAGI and balancing contributions to multiple IRAs can be complicated,
so consult a financial professional if you have any questions around your eligibility to contribute.

Roth IRA income requirements for 2023
Filing status Modified adjusted gross income (MAGI) Contribution limit
Single individuals < $138,000 $6,500
≥ $138,000 but < $153,000 Partial contribution
≥ $153,000 Not eligible
Married (filing joint returns) < $218,000 $6,500
≥ $218,000 but < $228,000 Partial contribution
≥ $228,000 Not eligible
Married (filing separately)*
< $10,000 Partial contribution
≥ $10,000 Not eligible

“Amount of Roth IRA Contributions That You Can Make for 2023,” Internal Revenue Service, October 2022.

Roth IRA income requirements for 2024
Filing status Modified adjusted gross income (MAGI) Contribution limit
Single individuals < $146,000 $7,000
≥ $146,000 but < $161,000 Partial contribution
≥ $161,000 Not eligible
Married (filing joint returns) < $230,000 $7,000
≥ $230,000 but < $240,000 Partial contribution
≥ $240,000 Not eligible
Married (filing separately)*
< $10,000 Partial contribution
≥ $10,000 Not eligible

Source: Internal Revenue Service, November 2023.