Skip to main content

We'll help you
move forward.

What Is a Roth IRA?

Roth IRAs are tax-favored financial vehicles that enable investors to save money for retirement. They differ from traditional IRAs in that taxpayers cannot deduct contributions made to a Roth. However, qualified Roth IRA distributions in retirement are free of federal income tax and aren’t included in a taxpayer’s gross income. That can be advantageous, especially if the account owner is in a higher tax bracket in retirement or taxes are higher in the future.

A Roth IRA is subject to the same contribution limits as a traditional IRA, the maximum combined annual contribution an individual can make to traditional and Roth IRAs is $7,000 in 2024 (an increase of $500 from 2023). Special “catch-up” contributions enable those nearing retirement (age 50 and older) to save at an accelerated rate by contributing $1,000 more than the regular annual limits.

There is no maximum age at which Roth IRA owners can contribute to a Roth as long as they have earned income, and they don’t have to begin taking mandatory distributions due to age, as they do with traditional IRAs; however, beneficiaries of Roth IRAs must take mandatory distributions.

Roth IRA withdrawals of contributions can be made at any time and for any reason. Withdrawals of contributions are tax-free and not subject to the 10% federal tax penalty for early withdrawals. In order to make a qualified tax-free and penalty-free distribution of earnings, the account must meet the five-year holding requirement and the account holder must be age 59½ or older. Otherwise, these withdrawals of earnings are subject to ordinary income tax and the 10% federal tax penalty (unless an exception applies).

Keep in mind that even though qualified Roth IRA distributions are free of federal income tax, they may be subject to state and/or local income taxes. Eligibility to make annual contributions to a Roth IRA phases out for taxpayers with higher incomes.

If you’re looking for a retirement savings vehicle with some distinct tax advantages, the Roth IRA could be appropriate for you.

 

The information in this newsletter is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the ­purpose of ­avoiding any ­federal tax penalties. You are encouraged to seek guidance from an independent tax or legal professional. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the ­purchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. © 2024 Broadridge Financial Solutions, Inc.

This information is intended for use only by residents of (AZ, CA, CO, DC, DE, FL, HI, ID, IL, KY, MA, MD, MT, NH, NJ, NV, NY, OR, TN, TX, UT, VA, WA, WI). Securities-related services may not be provided to individuals residing in any state not listed above.

For parties residing outside of the U.S., this information is: (i) provided for informational purposes only, (ii) not and should not be construed in any manner as an offer to participate in any investment or to buy or sell any securities or related financial instruments, and (iii) not and should not be construed in any manner as a public offering of any financial services, securities or related financial instruments. Products and services listed may not be available, or may have restrictions, depending on client country of residence.

Investment products and services are offered through Wells Fargo Advisors. Wells Fargo Advisors is a trade name used by Wells Fargo Clearing Services, LLC, Member SIPC, a registered broker-dealer and non-bank affiliate of Wells Fargo & Company.

Insurance products are offered through nonbank insurance agency affiliates of Wells Fargo & Company and are underwritten by unaffiliated insurance companies.

A note about Social Media: Opinions, comments and actions taken on Social Media are those of the third party and do not necessarily reflect the views of the creator of this profile or of the firm. Social Media is intended for U.S. residents only and subject to the following terms: wellsfargoadvisors.com/social.

© 2022 Wells Fargo Clearing Services, LLC. All rights reserved.

FINRA’s BrokerCheck Obtain more information about our firm and its financial professionals

FINRA’s BrokerCheck Obtain more information about our firm and its financial professionalsX