{"id":475,"date":"2021-03-26T19:50:04","date_gmt":"2021-03-26T19:50:04","guid":{"rendered":"https:\/\/readyretiree.com\/?p=475"},"modified":"2021-09-25T19:08:13","modified_gmt":"2021-09-25T19:08:13","slug":"what-is-a-roth-ira","status":"publish","type":"post","link":"https:\/\/readyretiree.com\/what-is-a-roth-ira\/","title":{"rendered":"What is a Roth Ira?"},"content":{"rendered":"
What is a Roth IRA?<\/strong> A Roth IRA is one of the many individual retirement accounts available that allows you to save for the future. While most retirement accounts are tax-deferred, meaning the money goes into savings before income taxes are calculated and you pay taxes on it when you take the money out, a Roth IRA is post-tax. You don’t get a break when you deposit the money, but you don’t have to pay taxes on it when you withdraw the money.<\/p>\n\n\n\n The Roth IRA was established in 1997 and is named after Delaware senator William Roth. While the Traditional IRA was established in 1975 and the 401k allowed in 1978, the Roth IRA is a newer vehicle; the rules for this vehicle are a bit more changeable.<\/p>\n\n\n\n Your Roth IRA can be purchased from a broker or a robo-advisor<\/a>. It can only be funded with after-cash tax; no stocks or other certificates can go into your Roth, though once you buy your investment choices, you can certainly move them around.<\/p>\n\n\n\n If you make too much money, you can’t use a Roth IRA directly. As of 2021, your modified adjusted gross income needs to be under $139,000 for a single, $206,000 for married filing jointly. The money you put in the account can’t be used to reduce your taxable income; you need a Traditional IRA or a 401k for that.<\/p>\n\n\n\n A Roth IRA is an ideal retirement vehicle for someone who doesn’t expect an income drop in retirement. If you expect to receive income from a business or an inheritance, the post-tax money you put into a Roth will result in a non-taxed payout after you turn 59 and 1\/2.<\/p>\n\n\n\n If you really want a Roth but your income is too high, you can set up a Traditional IRA and convert it. As of 2021, there are no income limits for a Traditional IRA. Be aware that there will be taxes to pay on the converted Traditional plan, but you’ll get the same tax-free growth of your investments as if you bought a Roth outright.<\/p>\n\n\n\n While it’s not a workaround, both Roth and Traditional IRA’s can be set up for a non-earning spouse. If you and your partner are raising a family and one of you has stayed home to care for children, starting either retirement account for their benefit is a great idea. Consider starting with a Traditional for the tax break, then add a Roth if your taxable income after retirement will be high.<\/p>\n\n\n\n Finally, if you’re a business owner who has children that work for you, be aware that you can create a Roth IRA<\/a>. for your children. You can’t put more money in there than your child actually takes home, but over time you can get them off to a good start and allow them to learn the ropes of The fear of running out of money in retirement is downright terrifying and the availability of Social Security funds is questionable. If you’re getting a little nervous about your retirement dollars, it’s important to rank how you’re going to fund these accounts so you can quit worrying and let your money make money.<\/p>\n\n\n\n If you have access to a 401k, max it. This is a tax-deferred contribution; most of us will have less money after retirement, so the tax burden will be less. Plus, most employer plans offer a match, so if you prefer not to max it, make sure you at least put enough into your 401k to get the full match from your employer.<\/p>\n\n\n\nA Little History<\/h2>\n\n\n\n
How Does a Roth IRA Work?<\/h2>\n\n\n\n
Workarounds<\/h2>\n\n\n\n
Where Do I Start?<\/h2>\n\n\n\n