A question I get asked all the time is what is a Roth IRA!?
Let’s do a dive into it
An Individual Retirement Account is a NONqualified account that allows a person to save for retirement with either the possibility of tax free growth or tax deferred.
That leads us to one possible IRA known as the Roth IRA.
The Roth IRA is an account where Contributions are made with after tax money and the earnings can potentially grow tax free. If certain conditions are met you can have tax free withdrawals.
In most cases with a Roth IRA you can withdraw your contributions at anytime. But to take out the earnings you must be over 59.5 and the account must be opened for at least five years.
Early Withdrawals can trigger taxes and a 10% withdrawal penalty! But we are able to see some exceptions:
- The big one is the ability to Withdraw $10,000 of earnings for your first time home.
- Withdraw for disability
- Qualified education expenses
- Qualified expenses related to a birth or an adoption
Who exactly can open an Roth IRA?
Only those who have earned income to a Roth IRA account. You will also have to fall into the Income Limits.
If you are filing single, head of household, or married filing separately the phase out is between your MAGI ( Modified Adjusted Gross Income) of $138,000-$153,000.
If married and filling jointly, your joint MAGI needs to be under $228,000.00 for 2023.
Example: If Hilary’s MAGI is $135,000.00 and she is single and 51 years old. How much can she maximum contribute to her Roth IRA?
Remember, She is over 50 years old so she can actually contribute the maximum of $6,500 PLUS $1,000 so she can put in $7,500.00
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