A Roth IRA is an individual retirement account; it’s called “Roth” because that’s the name of the Congressman who introduced the legislation, creating this type of retirement account. Retirement accounts have tax advantages to create an incentive for you to plan for your retirement and not depend upon public assistance in the future. Though you need to consult with professional advisors and get good advice, customized to your individual situation, the Roth is an incredible retirement planning tool.
You can open a traditional and Roth IRA if you have earned income (or, your spouse has earned income) and you are under the age of 70 1/2. Earned income comes from a job or business, not investment accounts.
If you’re 49 years of age or less, you can contribute up to $5,000 each year to a traditional or Roth IRA; if you’re age 50 or older, you can contribute up to $6,000 per year.
The Roth IRA is different than a traditional IRA because the Roth assets are distributed tax free; whereas, the distributions from a traditional IRA are taxed as ordinary income. However, contributions to a traditional IRA are tax deductible; whereas, the contributions to a Roth are NOT tax deductible.
Another benefit of the Roth is that you are NEVER required to take distributions during your lifetime; the assets can continue to grow without being taxed. On the other hand, you must take minimum distributions from a traditional age when you are 70 ½ years of age.
You must meet income restrictions to contribute to a Roth IRA. In 2018, the phase out for Roth IRA contributions begins for single individuals at an income of $120,000 per year and $135,000 is the maximum annual income allowable. For married persons, the Roth IRA phases out starts at $189,000 and ends at $199,000.
For questions about retirement planning, the ROTH IRA, and other estate planning issues, consult with an experienced and qualified estate planning attorney.