Roth IRA

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DEFINITION of 'Roth IRA'

An individual retirement plan that bears many similarities to the traditional IRA, but contributions are not tax deductible and qualified distributions are tax free. Similar to other retirement plan accounts, non-qualified distributions from a Roth IRA may be subject to a penalty upon withdrawal.

INVESTOPEDIA EXPLAINS 'Roth IRA'

A qualified distribution is one that is taken at least five years after the taxpayer establishes his or her first Roth IRA and when he or she is age 59.5, disabled, using the withdrawal to purchase a first home (limit $10,000), or deceased (in which case the beneficiary collects). Since qualified distributions from a Roth IRA are always tax free, some argue that a Roth IRA may be more advantageous than a Traditional IRA.

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RELATED FAQS
  1. What are the tax advantages of a Roth 401(k) over an IRA or traditional 401(k)?

    Roth 401(k) dollars are essentially subject to the same income tax rules as Roth IRA. Funds already held within a Roth 4 ... Read Full Answer >>
  2. How can I lower my effective tax rate without lowering my income?

    There are lots of ways to lower your effective tax rate, although your individual circumstances determine whether you can ... Read Full Answer >>
  3. What is the penalty for withdrawing money from my Roth IRA?

    The penalty for early withdrawal of Roth IRA earnings is 10% of the distribution amount. There is no penalty for withdrawing ... Read Full Answer >>
  4. Are Roth IRAs tax deductible?

    Contributions made to a Roth IRA are not tax deductible, although you may be able to take a tax credit, depending on your ... Read Full Answer >>
  5. How are IRA withdrawals taxed?

    The way in which IRA withdrawals are taxed depends on the type of IRA. In a Roth IRA, there is no tax due at withdrawal on ... Read Full Answer >>
  6. Do IRA contributions reduce average gross income (AGI)?

    IRA contributions to a traditional IRA reduce the IRA AGI or adjusted gross income because the qualifying contribution is ... Read Full Answer >>
  7. What are the income limits for a Roth IRA in 2014?

    The income limits for a Roth IRA in 2014 vary by tax filing status. According to the Internal Revenue Service, a married ... Read Full Answer >>
  8. What are the advantages of a Roth IRA?

    A Roth IRA has many advantages for lower-income investors. Though they are not tax deductible, contributions to your Roth ... Read Full Answer >>
  9. Why should I open an IRA?

    When planning for retirement, many people fall back on the qualified retirement plans offered through their employers, typically ... Read Full Answer >>
  10. When can I withdraw my IRA money?

    There are several ways to withdraw funds from an individual retirement account. Forbes advises that withdrawing funds should ... Read Full Answer >>
  11. Is a Roth IRA a qualified retirement plan?

    Yes, a Roth IRA is a qualified retirement plan. The IRS has very stringent requirements that qualified retirement plans must ... Read Full Answer >>
  12. What are the risks associated with a Roth IRA?

    The main risk for opening a Roth IRA is that you do not get the same up-front tax break you get with a traditional IRA. A ... Read Full Answer >>
  13. Can I invest in gold or silver with my Roth IRA?

    You can use your self-directed Roth IRA to invest in U.S. gold coins in increments of one, one-half, one-quarter or one-tenth ... Read Full Answer >>
  14. Do the limits of a Roth IRA change every year?

    The investment limits for a Roth IRA do not change every year, but they have increased since the retirement account's inception ... Read Full Answer >>
  15. How do I roll over my Roth 401(k) into a Roth IRA or IRA?

    It is important to understand the procedure involved to roll over Roth 401(k) qualified retirement plans into a Roth IRA ... Read Full Answer >>
  16. What are the disadvantages of a Roth IRA?

    A Roth IRA comes with many advantages, but few of these benefit higher-income investors. The IRS limits your contributions ... Read Full Answer >>
  17. Can I withdraw money from my Roth IRA?

    You can withdraw money from your Roth IRA; whether the withdrawal is penalized and at what rate it is taxed depends on a ... Read Full Answer >>
  18. What are some examples of the most common assets on a Roth IRA?

    The most common asset in a Roth IRA is cash. Cash contributions can be made through the year, either from automatic withdraws ... Read Full Answer >>
  19. How can you borrow from a Roth IRA?

    Technically, you can’t borrow money from a Roth IRA, at least not like you would from a traditional loan, but there are other ... Read Full Answer >>
  20. How do I go about opening up a Roth IRA?

    You may open Roth IRAs at most financial institutions, such as your local bank, your credit union, or brokerage firm. You ... Read Full Answer >>
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