A Roth IRA (Individual Retirement Account) is a retirement savings account funded with after-tax dollars, meaning contributions are made with money that has already been taxed. Its main advantage is that the money grows tax-free, and qualified withdrawals during retirement are tax-free as well, provided certain conditions are met such as being at least 59½ years old and having the account for at least five years. Unlike traditional IRAs, contributions to a Roth IRA are not tax-deductible, but withdrawals of both contributions and earnings are tax-free, giving it a unique tax benefit structure. Additionally, Roth IRAs do not require minimum distributions during the account holder's lifetime, allowing the money to grow for longer. Contributions can also be withdrawn at any time without taxes or penalties. The Roth IRA is suitable for individuals who expect to be in a higher tax bracket during retirement or who want more flexibility in accessing their contributions before retirement. Contribution limits are set annually by the IRS and depend on income levels and age. In summary, Roth IRAs allow tax-free growth and tax-free withdrawals in retirement in exchange for contributions that are taxed upfront.
