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The Roth IRA was created in 1997 and is named after Senator William Roth. The Roth IRA is a versatile retirement plan that confers multiple benefits. The contributions made are with after-tax money and are not tax-deductible, this enables earnings on the account to accumulate tax-free. Distributions from the account are also tax free provided certain criteria is satisfied. This vehicle is tax efficient because you only must pay tax on the initial investment rather than the accumulated growth value over time. This is especially important if your tax rate increased in the future. Another benefit is that there are no age limits for contributions and no required minimum distributions. On the other hand, one major drawback to a Roth IRA is that high-income earners cannot open or contribute to a Roth IRA directly. If you file taxes as a single person the income limit is $140,000, and if you are married and file jointly the income limit is $208,000*. The good news is that they still have options. Speak with your tax advisor on how this will increase your taxes for the year.

 

 

 

*Based on 2021 Cost-of-Living Adjusted Limits
Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment.
Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Like Traditional IRAs, contribution limits apply to Roth IRAs. In addition, with a Roth IRA, your allowable contribution may be reduced or eliminated if your annual income exceeds certain limits. Contributions to a Roth IRA are never tax deductible, but if certain conditions are met, distributions will be completely income tax free.
While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.
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