All contributions are made after tax, but the earnings grow on a tax-free basis provided that certain requirements are met. Unlike traditional IRAs, contributions may be made after you reach the age of 70 ½, and there are no required minimum distributions at 70 ½. In most instances, the amounts you have contributed may be withdrawn at any age with no tax liability.
When you reach the age of 59 ½ years and the Roth account has been funded for at least five years, you can take tax-free withdrawals of both contributions and earnings. Roth IRAs are extremely flexible tools for all ages of investors. You are able to plan for retirement and are also able to withdraw funds without dire tax penalties.
You can contribute to a self-directed Roth IRA if you have taxable income and your modified adjusted gross income is less than:
Married individuals filing jointly: $194,000 for 2016
Single or head of household: $132,000 for 2016
Married, filing separate returns: $10,000 for 2016
|Roth IRA||$5500 per year||$5500 per year|
|Catch-up Contribution||$1000 catch-up contribution if 50 and older||$1000 catch-up contribution if 50 and older|
You May Take Tax-Free Distributions From a Roth IRA If:
There are certain exceptions that may qualify for tax-free distributions. For example, you may qualify if you are disabled. If you are buying a home for the first time you may have the ability to take a tax-free distribution of up to $10,000. Additionally, if you are paying for higher education costs for you or a dependent, you may be eligible to take tax-free distributions for this purpose. It is critical that you discuss these potential options with your tax professional to ensure any distribution you may qualify for is in compliance with IRS standards.
When you take withdrawals, the funds are distributed in the following order: