A Roth IRA (Individual Retirement Account) is a type of retirement savings account that allows individuals to save money for retirement on a post-tax basis. This means that contributions to a Roth IRA are made with after-tax dollars, and withdrawals during retirement are tax-free.
Unlike traditional IRAs, which offer tax-deferred contributions and tax-deductible contributions, a Roth IRA allows individuals to pay taxes upfront on contributions but then benefit from tax-free withdrawals in retirement. This can be especially beneficial for individuals who expect to be in a higher tax bracket during retirement than they are currently.
Contributions to a Roth IRA are subject to annual limits, and individuals must have earned income to be eligible to contribute. Additionally, there are income limits for Roth IRA contributions, which can vary depending on an individual’s tax filing status and other factors.
Roth IRAs can be a valuable tool for retirement planning, as they offer tax-free growth and can be used in conjunction with other retirement savings vehicles, such as 401(k) plans. However, it is important for individuals to carefully consider their financial goals and tax situation before making contributions to a Roth IRA or any other retirement account.« Back to Glossary Index