A Roth IRA is an Individual Retirement Account, which you can add to after taxes. There are no present tax benefits to a Roth IRA, but your income growth within the Roth IRA is able to increase tax-free. With a Roth IRA, you are able to withdraw the money in the account tax- and penalty-free after age 59 ½ and once the open account is five years old.
Roth IRAs have grown in popularity due to being good savings options, especially for individuals who plan to be in a higher tax bracket, which makes the tax-free withdrawals more beneficial. Nevertheless, there are income restraints to opening a Roth IRA as well as contribution limits, which makes a Roth IRA not desirable for everyone.
Roth IRA contributions are made on an after tax-basis, but your eligibility to contribute to a Roth IRA is based on your income. If you file taxes as a single individual, your Modified Adjusted Gross Income (MAGI) is required to be under $140,000 for the 2021 tax year and under $144,000 for the 2022 tax year to contribute to a Roth IRA. If you are married and you and your spouse file jointly, your MAGI must be under $208,000 for the 2021 tax year and $214,000 for the 2022 tax year. The maximum annual contribution to all IRAs combined is $6,000 if you are under 50 or $7,000 if you are over the age of 50, but this all depends on your MAGI.
A majority of the US population currently has a 401(k), and, like a Roth IRA, a 401(k) has certain tax benefits. Contributions to a 401(k) are pre-tax and, therefore, reduce the tax burden on both the employer and the employee, in opposition to Roth IRAs after-tax contributions. Some individuals have chosen to have both accounts at once to contribute to their retirement plan, but whether or not that works depends on your current financial situation.
If you believe a Roth IRA may be the best choice for you, our advisors at Care Financial will be able to help you confirm this decision as well as help you convert to a Roth IRA. Our financial advisors take the time to learn what is important to you and provide you with retirement options as well as design a retirement strategy based on confidence and investment goals. To get more information on Roth IRAs and your financial future, call Care Financial today and talk to one of our advisors. We will have you ready for retirement in no time!