A Roth IRA is a type of individual retirement account. Unlike with a traditional IRA, you don’t receive a tax break for your contributions; you contribute aftertax dollars. In a Roth IRA, your contributions grow tax-free, and you can withdraw money from your account tax-free after the age of 59 ½.
What is a Roth IRA?
- A Roth IRA is a type of individual retirement account that offers tax savings, but there are rules around contributions and withdrawals.
- Unlike a traditional IRA, a Roth IRA doesn’t give you a tax break when you contribute. Instead, it offers tax-free withdrawals of your contributions and any increase in their value.
- If you expect to be in a higher tax bracket when you retire, you may consider a Roth IRA over a traditional IRA because you would have a lower tax burden by paying taxes on your contributions instead of your future withdrawals.
There are limits to how much you can contribute to a Roth IRA each year depending on your income level. Withdrawals are also subject to additional rules. To withdraw your money tax-free and without penalty, you must be at least 59 ½ years old and have the account for at least five years. Early withdrawals are subject to a penalty, but there are some exceptions.