A Roth IRA (Individual Retirement Account) is a special retirement savings account where you deposit money you have already paid taxes on, allowing your investments to grow and be withdrawn completely tax-free.
How It Works
- After-Tax Contributions: You fund the account with dollars that have already been taxed, meaning you do not get an upfront income tax deduction.
- Tax-Free Growth: The money inside the account is used to buy investments—such as stocks, bonds, mutual funds, or exchange-traded funds (ETFs)—which grow tax-free over time.
- Qualified Withdrawals: In retirement, you can withdraw your investment earnings completely tax-free if you are at least 59½ years old and the account has been open for at least five years.
Key Benefits
- Withdraw Contributions Anytime: Because you already paid taxes on your initial contributions, you can pull your original contributions out at any time for any reason without paying taxes or penalties.
- No Required Minimum Distributions (RMDs): Unlike traditional IRAs, the original owner of a Roth IRA is never forced to take money out of the account during their lifetime.
- No Age Limits: As long as you (or your spouse) have earned income, you can continue contributing to a Roth IRA at any age.