1. Tax-Free Withdrawals
Money that goes into a Roth IRA is after-tax dollars. Because you've already paid taxes on that money, once it is withdrawn, it comes out tax-free. There are some restrictions on those withdrawals if you want to avoid penalties and taxes. But keep in mind, you can withdraw your contribution at any time, tax-free.
You'll need to wait until age 59 ½ or for the Roth IRA to be at least five years old before you can withdraw any earnings penalty and tax-free. But again, you can withdraw your contributions at any time tax-free.
2. Earnings Grow Tax-Free
The great thing about a Roth IRA is that any growth is tax-free—any earnings on your contributions will be tax-free. It doesn’t matter what you invest in. Potential growth on those investments will be tax-free. Once you meet the above two conditions, withdrawals of earnings will be tax-free as well.
3. Withdraw Early Penalty-Free
You can withdraw contributions from a Roth IRA before 59 ½, both penalty-free and tax-free. If you need those funds, they’re available. It’s almost like having an emergency fund.
You can also withdraw contributions tax-free before the account is five years old.
4. 50 And Older Can Contribute More
For those who are 50 or older, you can contribute more to your Roth IRA. The 2021 contribution limit is $6,000 per year. But for those who are 50 or older, that limit gets bumped up to $7,000. The additional $1,000 is called a catch-up contribution.
5. Contribute Anytime
It doesn’t matter what age you are – you can contribute to a Roth IRA at any age as long as you have earned income. Because any earnings on your contributions will be tax-free, it makes sense to keep contributing to your Roth IRA.
Other Benefits Of A Roth IRA
Here are a few additional benefits of the Roth IRA:
If you’d like to discuss further, contact the office.
Ready to take the next right step towards turning your money into lasting wealth?
Learn what Financial Partnership looks like.
A Roth IRA offers tax free withdrawals on taxable contributions. To qualify for the tax-free and penalty-free withdrawal or earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59½ or due to death, disability, or a first time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes. For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC, nor any of its representatives may give legal or tax advice.
Roth IRA Tax Benefits That Everyone Should Know
August 02, 2021