Let’s Talk… Roth IRA Basics!

It’s tax time and for most people it’s time to make IRA contributions. For many who meet the criteria to contribute to a Roth, it can be a powerful tool in a long term retirement plan. Here are some basics to remember about Roth IRAs. 

• First, just like regular IRAs, you can make 2022 contributions up until and including April 15th. Even if you get an extension to file late, contributions have to be in by that date.
• Second, Roth contributions are post-tax but grow tax-free. More importantly, after you reach 59.5 years old, all distributions from a Roth come out tax-free. For 2022, you can contribute $6K into a Roth. If you are 50 years old or over, you can contribute $1K more as a catch-up. In 2023 the contribution limits go to $6.5K and the catch-up contribution stays the same.
• Third, keep in mind that if your earned income is over a certain threshold ($144K for 2022/ $153K for 2023 for single filers and $214K for 2022/ $228K for 2023 for married filing jointly), you may be unable to do a Roth IRA. At that point, you would need to talk to a financial advisor about whether a back-door Roth makes sense. Lastly, you need earned income to make any IRA contributions.

In the end, a Roth can be turned into a tax-free income source in retirement. If you believe, like I do, that over the long-term taxes will rise, it may be prudent to defer the tax benefit today to get the tax-free growth years ahead.

The content in this material was created for educational and informational purposes only and is not intended as an investment advice.

The opinions voiced in this material are for general information only and not intended to provide specific advice or recommendations for any individual.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations are restrictions may apply.

Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax.

Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.