You won't pay taxes on the potential growth of your funds in a Roth IRA account, and you can take money tax-free in retirement.
A Roth IRA is an Individual Retirement Account to which you contribute after-tax dollars. While there are no current-year tax benefits, your contributions and earnings can grow tax-free, and you can withdraw them tax-free and penalty free after age 59½ and once the account has been open for five years.
Your eligibility to open a Roth IRA and how much you can contribute is determined by your Modified Adjusted Gross Income (MAGI). If you are a single or joint filer, your maximum contribution starts to reduce at $129,000 and $204,000 for tax year 2022 and $138,000 and $218,000 for tax year 2023, respectively.
Benefits of a Roth IRA
- No Contribution age restrictions
- Qualifies tax-free withdrawals
- No mandatory withdrawals
- No income taxes for inherited Roth IRAs
- Earnings grow tax-free