The Roth IRA differs from Traditional IRAs in that funds contributed are not tax deductible.
These contributions consist of after-tax dollars. When funds are withdrawn from a Roth IRA, interest earned is tax-exempt as long as the Roth IRA holder meets certain criteria at the time of withdrawal.
Investors would benefit from a Roth IRA if they:
- Expect to be in the same or an even higher tax bracket at retirement age,
- Already contribute to a 401k or other company plan, or
- Want to continue to contribute to an IRA Plan after age 70½.
- Eligibility to contribute to a Roth IRA is based on your Modified Adjusted Gross Income (MAGI). You may be actively contributing to a 401(k) Plan and also be eligible to contribute to a Roth IRA.
- Contributions can be made up until your tax-filing deadline, generally April 15, for a prior year contribution.
- Eligible individuals may contribute the lesser of the annual contribution limit or 100% of their earned income to a Roth IRA.
- Individuals over age 70 ½ may continue to make contributions to a Roth IRA as long as they have earned income.
- You may contribute to both a Traditional and a Roth IRA for a combined total up to the annual contribution limit.