Starting and contributing to a Roth IRA offers a key tax advantage and a way to diversify your retirement savings.
Deciding to save for retirement now could help you have a more secure future. Figuring out how to do it, on the other hand, can be a bit confusing. How do you determine what鈥檚 best for you and your goals?
If you're assembling a retirement savings toolbox to build your post-work life, a Roth IRA may help. Here鈥檚 how to start a Roth IRA, how much you can contribute to a Roth IRA, and more.
What is a Roth IRA?
A Roth individual retirement account (IRA) is an after-tax retirement savings account. Why after tax? You create and add to a Roth IRA with money that鈥檚 already been taxed. But that means that both growth and withdrawals when you take a qualified distribution are not taxed.
While tax-free withdrawals and growth are great, Roth IRAs offer several other benefits. Those include:
- access to a range of potential investment options,
- ability to consolidate other retirement savings accounts into a Roth IRA,
- opportunity to create a diverse savings plan, if you鈥檙e also part of an employer-sponsored retirement plan like a 401(k) or 403(b),
- option to convert other retirement savings into a Roth IRA,
- a flexible withdrawal strategy in retirement, and
- tax-free withdrawals for heirs if a Roth IRA is part of an estate plan.
In addition, if you鈥檙e married and your spouse isn鈥檛 employed or doesn鈥檛 make enough to set up a Roth IRA, you can set up a spousal Roth IRA for them.
How can you start a Roth IRA?
It鈥檚 key to understand two things before you start a Roth IRA:
- You must have earned income鈥攎eaning, you must still be employed, either full or part time.
- You must be under .
Roth IRA limits
| Income tax filing status: | IRS income limitations |
|---|---|
| Married, filing jointly | $218,000 |
| Single, head of household | $138,000 |
How much can you contribute to a Roth IRA?
There are combined contribution limits for both traditional IRAs and Roth IRAs based on your age. Those often change year to year, but for 2023 they are:
- $6,500 for those under age 50, and
- $7,500 for those age 50 or older.
Quick guide to a Roth IRA
Taxes: Paid before you contribute; distributions are tax-free
Age restrictions to set up: None
Income limits: Yes (see above)
Contribution limits: $6,500, age 50; $7,500 age 50+
Withdrawals: Not required, but can begin any time after age 59陆
When can you take money out of a Roth IRA?
Two important considerations influence when you can withdraw from a Roth IRA:
- You must have had the account for more than five years.
- You must be at least age 59陆.
If you withdraw funds earlier than age 59陆 or before the Roth IRA account is five years old, you may face both early withdrawal penalties and taxes. However, unlike 401(k)s, 403(b)s, and traditional IRAs, there鈥檚 no required minimum distribution (RMD) once you retire. In fact, you don鈥檛 ever have to withdraw money from a Roth IRA.
What's next?
Boosting your retirement contributions, even by 1%, can help build a foundation for long-term retirement account growth. to assess your savings rate. Don鈥檛 have an employer-sponsored retirement account? We can help you set up an IRA or a Roth IRA.
