Roth IRA

What is a Roth IRA? How Does it Differ From a Traditional IRA?

A Roth IRA is an individual retirement account allowing a person to set aside after-tax income up to a specified amount each year. Both earnings on the account and withdrawals after age 59½ are tax-free. Whereas a traditional IRA is placed into the account pre-taxes, then subject to income tax upon withdrawal, the Roth IRA is the opposite (you pay taxes up front, then grow the funds and withdrawal them tax free). If you believe you will be in a higher income tax bracket at retirement age, it can make more sense to pay income tax now, invest in a Roth IRA vs. a Traditional IRA and withdrawal the funds tax free later (when you are in the higher income tax bracket). The opposite also remains true. However, it is nearly impossible to tell what tax reform could potentially look like over the next 30 years or so, therefore depending upon your time frame, there is substantial risk that tax rates and/or the tax system could change greatly thus possibly minimizing/changing some of the advantages/disadvantages you believed were present when making these decisions.

Are There Contribution Limits for a Roth IRA?

Yes, contribution limits for traditional and Roth IRA plans in the year 2018 is still $5,500, with catch-up contributions allowed in the amount of $1,000 for those 50 and over.

Are There Income Limits for Contribution to a Roth IRA? 

For those covered by a workplace retirement plan such as a 401(k), the income ranges for IRA deduction are as follows:

You may only contribute to a Roth IRA if you make less than $135,000 for individual filers (single filers) and $199,000 for married couples filing jointly. Additionally, your contributions can be made anytime from January 1 to the tax filing deadline April 18, 2018.

Where Can I Open a Roth IRA?

Nowadays there are many workplace plans which offer Roth IRA’s along with the 401k which can be withdrawn with each paycheck at a rate of your choosing (the 401k contributions would come pre-tax, the Roth IRA contributions after tax). Additionally, there are many top brokerage/investment firms who offer Roth IRA’s with convenient online access, and a variety of investments to choose from including individual stocks, mutual funds, exchange traded funds, and more. Some of these firms include:

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