Roth IRA

A Roth IRA is an individual retirement plan that bears many similarities to the traditional IRA, but contributions are not tax-deductible, and qualified distributions are tax-free.

Frequently Asked Questions
  • How do I open a Roth IRA?

    Most banks and brokerages offer Roth IRA accounts. First you need to be sure that your income qualifies you to open a Roth. Then you have to fill out the paperwork, name beneficiaries, and decide how to invest the money. The good part: You’re in charge of when to open a Roth IRA, not an employer.

  • When can you withdraw from a Roth IRA?

    You can withdraw your contributions at any time and owe no taxes or penalties. But you can only withdraw the account’s earnings according to specific rules, with some specified exceptions, such as health insurance premiums while you are unemployed.

  • Are Roth IRA contributions tax deductible?

    Roth IRA contributions are never tax-deductible: The essence of a Roth is that you contribute with after-tax income. However, qualified distributions from a Roth are tax-free, unlike withdrawals from a traditional IRA.

  • Can you have a 401(k) and a Roth IRA?

    Yes, you can have both types of accounts—and it's a good way to diversify retirement savings. Just be sure that you contribute no more than the permissible limits for each account. Being able to open a Roth IRA depends on your income, but there are no income limits for having a 401k).

  • Can I open a Roth IRA for my child?

    Yes, but only if your child has earned income. This can be from odd jobs or side gigs like selling crafts, or if your child is employed, for example, as an actor or model. If your child is a minor, it needs to be a custodial account. The decades of tax-free growth of the funds before retirement make opening a Roth IRA a really smart move and a good way to introduce your child to financial planning.

  • What are the downsides of a Roth IRA?

    The biggest disadvantage may be that you don’t get a tax deduction for your contributions when you make them, which can be a problem if you’re close to a higher income bracket. You also are limited by the five-year rule, which makes Roth IRAs a less-desirable choice for older investors who may want to use their retirement income sooner.

Key Terms

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  1. IRS. "2022 Limitations Adjusted as Provided in Section 415(d)."