Tax-Free Withdrawals with a  Roth Ira

Most people when they consider an Individual Retirement Account (IRA) are thinking about what is known as a traditional IRA.  There is though, another type of an IRA that has distinct differences from a traditional IRA --- it is known as a Roth IRA.

The main advantage of a Roth IRA is that any withdrawals that you make, including any earnings and gains, can be federal tax-free.  The conditions to qualify for tax-free are:

  •  The Roth IRA account is at least 5 years old.

  • Your age is at least 591/2.

  • The withdrawal is made because of your disability; death; or other exception.

The disadvantage of a Roth IRA is that any contributions that you make are never tax deductible on your federal income tax return.

 

In a traditional IRA, your contributions can be tax deductible which is good --- but any earnings and gains are only tax-deferred.  You will later pay federal income tax on the deductible contributions and any earnings when you later withdraw from your traditional IRA account.

Roth IRA Contribution Limits

As with a traditional IRA, there are yearly contribution limits to your Roth IRA. Income for these purposes is defined as  Modified Adjusted Gross Income.

  • For 2021, if you are married and filing a joint federal tax return, your contribution is reduced if your income is at least $198,000. If your income is at least $208,000, you cannot make a Roth contribution.

  • For 2022, if you are married and filing a joint federal tax return, the above amounts are increased to $204,000 and $214,000 respectively.

  • For 2021, If you are single or claim head of household status, your Roth IRA contribution is reduced if your income is at least $125,000. If your income is at least $140.000, you cannot make a Roth IRA contribution.

  • For 2022, if you are single or claim head of household status, the above amounts are increased to $129,000 and $144,000 respectively.