Listener Request: What are Roth IRAs? | Ep. 5

Key Takeaways

• 1

  Roth IRAs are named after Senator William Roth and were created by the 1997 Taxpayer Relief Act

  Senator William Roth advocated for post-tax IRA contributions

  The Taxpayer Relief Act passed in 1997 established Roth accounts

  Roth accounts allow contributions on a post-tax basis unlike traditional IRAs

• 2

  Roth contributions are post-tax but qualified distributions are completely tax-free

  Contributions to Roth IRAs do not reduce your current tax bill

  All qualified distributions from Roth accounts are tax-free

  Traditional accounts are pre-tax going in but taxed on withdrawal

• 3

  Roth IRAs have no required minimum distributions (RMDs) at age 70½

  You can contribute to Roth IRAs after age 70½

  Traditional accounts require RMDs starting at age 70½

  Money can remain in Roth IRAs for your entire lifetime

• 4

  Roth IRAs are ideal for those currently in lower tax brackets

  Lock in lower tax rates now rather than paying higher rates later

  You can contribute to both Roth and traditional accounts

  Employer matches on Roth 401(k)s are still pre-tax contributions

• 5

  After 5 years, Roth IRA contributions can be withdrawn tax-free for qualified purposes like home purchases

  Contributions (not earnings) can be withdrawn penalty-free after 5 years

  Useful for first-time homebuyer down payments

  Link to IRS website provided for detailed qualified distribution rules