A Roth IRA is a type of individual retirement account (IRA) that allows individuals to contribute after-tax money to the account, meaning that the contributions are not tax-deductible. However, when the money is withdrawn in retirement, it is tax-free, including any earnings on the investments in the account.
One of the main benefits of a Roth IRA is that it provides tax-free growth potential. Because the contributions are made with after-tax dollars, the money in the account can grow tax-free and be withdrawn tax-free in retirement, as long as certain rules are followed. Another benefit of a Roth IRA is that there are no required minimum distributions (RMDs) during the lifetime of the original account holder, which can provide more flexibility in retirement planning.
To contribute to a Roth IRA, an individual must have earned income, and there are income limits that determine who can contribute and how much they can contribute each year. As of 2021, individuals with modified adjusted gross incomes (MAGIs) of less than $140,000 (single filers) or $208,000 (married filing jointly) can contribute up to $6,000 per year to a Roth IRA, with an additional catch-up contribution of $1,000 per year for individuals age 50 and older.
