What Is a Roth IRA?
A Roth IRA is an individual retirement account where you invest money youve already paid taxes on.
Its not affiliated with an employer.
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What makes a Roth IRA unique is how the government taxes it.
With a traditional IRA, your contributions are after-tax but you’re able to often deduct them.
With both of these plans, youll pay taxes on your contributions and earnings at the time of withdrawal.
But with a Roth IRA, youre investing money after you pay taxes on it and its not deductible.
Probably not as good as youd like.
It always seems like an uphill battle to build (and keep) a decent amount in savings.
But what if your car breaks down, or you have a sudden medical bill?
Youll probably be taxed in a lowertax bracketnow than you would be if your earnings are higher later on.
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But youll never have to take money out of your own Roth IRA.
you might also use it to supplement your employer-provided plan.
You also fund these accounts with after-tax dollars and later withdraw your money tax-free in retirement.
Youll still owe income taxes on the earnings, though.
There Are No Age Limits
There is no age limit for contributing to a Roth IRA.
Here are a few.
Your tax break comes when you reach retirement age.
Thats an increase from the 2022 limit of $6,000.
Once youre 50 or older, youre allowed an additional $1,000 catch-up contribution for both 2022 and 2023.
From there, the amount it’s possible for you to contribute phases out.
you might do so at virtually any major brokerage.
Most offer commission-free trades and no account minimums.
Once youve chosen a provider, you might easily open an account online.
Be ready to provide information like your birthdate and your Social Security number.
Then, youll need to determine how and where you want to invest your money.
Typical fees range from 0.25% to 0.5% of your account balance.
The types of investments your robo-adviser makes will largely depend on your age andrisk tolerance.
Once youve invested your money, keep contributing more.
Max out your annual contribution whenever possible.
Sometimes your investments will make you money; sometimes they will lose you money.
Catherine Hiles lives in Ohio with her husband and their two children.
When you log into your bank account, how do your savings look?
Probably not as good as youd like.
It always seems like an uphill battle to build (and keep) a decent amount in savings.
But what if your car breaks down, or you have a sudden medical bill?
