A Roth IRA (Individual Retirement Account) is a tax-advantaged retirement account that allows your investments to grow tax-free. Unlike traditional IRAs, contributions to a Roth IRA are made with after-tax dollars, meaning you pay taxes now and enjoy tax-free withdrawals in retirement. For anyone seeking tax-efficient retirement planning, the Roth IRA is a smart choice.
How a Roth IRA Works
You contribute money you've already paid taxes on into a Roth IRA account. That money is then invested in mutual funds, stocks, bonds, or ETFs, where it grows without being taxed annually. When you reach age 59½—and the account has been open for at least five years—you can withdraw both your contributions and earnings completely tax-free.
Roth IRA Contribution Limits
As of 2025, the Roth IRA contribution limit is $7,000 per year ($8,000 if you're age 50 or older). However, eligibility phases out at higher income levels. For single filers, the Roth IRA income limit begins at $146,000 and phases out completely at $161,000.
Key Benefits
- Tax-Free Growth: No taxes on investment gains.
- Tax-Free Withdrawals: No taxes on qualified distributions in retirement.
- No Required Minimum Distributions (RMDs): Unlike traditional IRAs, Roth IRAs do not require you to withdraw funds at a certain age.
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