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
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.