Contributions to Roth IRA retirement accounts are post-tax. That means there’s no deduction for contributions to Roth IRAs: you pay tax on that money before it is deposited into your Roth IRA account. However, as a result, most distributions are tax-free. So when you withdraw money from your Roth IRA after retirement, the original contributions and all their growth over the years is typically tax-free. Unlike traditional IRAs, in which you defer paying tax on the contributions but you do owe tax on the distributions, Roth IRAs enable you to pay the tax now for tax-free accumulation down the road.
Keep in mind that there are some restrictions on Roth IRA distributions to keep them free of tax. Distributions are generally tax-free as long as:
- They are taken after you turn 59½.
- They are taken after your death.
- They are a result of you becoming disabled.
- They are taken to pay first-time home buyer expenses (up to $10,000).
Remember, you or your spouse must also have taxable income for you to be able to contribute to a Roth IRA account.
Ready to learn more about the specific tax advantages of a Roth IRA account? Talk to your financial advisor or call the tax experts at Prospect Genius for additional information today!