Roth IRAs
What to know about Roth IRAs
A Roth Individual Retirement Account (IRA) is an investment account that allows you to contribute to your retirement. Contributions to a Roth IRA are made after taxes and then your contributions and earnings grow tax-free.
Roth IRA features
- You can contribute each year up to the IRS defined limit or 100% of your earned income, whichever is less.
- Roth IRAs offer tax-deferred growth, and qualified distributions are tax-free in retirement.
- You may withdraw your contributions (not earnings) at any time, without tax or penalty.
- There are no required minimum distributions (RMDs) on a Roth IRA — unlike a traditional IRA, which requires them at age 73.
Things to consider
- Your modified adjusted gross income (MAGI) determines your eligibility to contribute.
- You do not deduct your contributions on your tax return; they’re made with after-tax income.
- Distributions are tax- and penalty-free after five years for those over age 59½ or if you qualify based on certain exceptions (see Withdrawals).
- Nonqualified withdrawals of earnings may be taxed and you may owe a 10% IRS tax penalty (see Withdrawals).
Roth IRAs offer you an opportunity to create tax-free income during retirement and avoid RMDs beginning at age 73. Tax-free retirement income may be appealing if you have a traditional IRA or a 401(k) and want to diversify your tax situation in retirement or if you estimate being in the same or a higher tax bracket in retirement as you are today.
Contribution limits and eligibility
Contribution limits vary based on age, and can change each year as defined by the IRS. MAGI limits also change. Visit the IRS website for details.
Withdrawals
With a Roth IRA, you can withdraw your contributions at any time, free of tax or penalty. Qualified distributions of earnings are income tax-free and penalty-free. Distributions are considered qualified after five years if you are at least age 59½ or as a result of death or disability or for qualified first-time homebuyers.
If you take nonqualified distributions of earnings, you may owe income taxes and a 10% IRS penalty. There are a few exceptions that allow you to avoid the 10% penalty:
- Disability
- Qualified first-time homebuyer ($10,000 lifetime limit)
- Qualified higher-education expenses
- Qualified birth or adoption ($5,000 limit per birth or adoption)
- Qualified military reservist
- Medical expenses in excess of 10% of adjusted gross income
- Health insurance premiums for certain unemployed individuals
- Substantially equal periodic payments
- Death
Any tax or legal information on this website is merely a summary of our understanding and interpretations of some of the current income tax regulations and is not exhaustive. Investors should consult their tax advisor or legal counsel for advice and information concerning their particular situation. Allspring Global Investments does not provide accounting, legal, or tax advice or investment recommendations.
