Column, Money Matters

Should you open a Roth IRA?

By Kevin Theissen

A Roth IRA can help you save for the future – with some flexibility. Roth contributions are made after taxes have been paid and offer the potential for tax-free growth and tax-free withdrawals in retirement. But that’s not all – if you need money before retirement, you can withdraw the money you contribute to the account at any time, with no extra taxes or penalties.

Individuals under 50 can save up to $6,000 for 2021. Over 50 and the limit is $7,000.

Anyone over age 18 with earned income can contribute to a Roth IRA. Minors with earned income can contribute to a custodial Roth IRA.

Here’s how it works:

Fund this retirement account with contributions that are made after taxes have been paid.

Grow your investments federal tax-free, as long as the money stays in the account.

Withdraw money tax-free in retirement. But there are income limits: $140,000 for single filers in 2021; $208,000 for married taxpayers filing jointly.

When can I withdraw?

Contributions: At any time without taxes or penalties.

Earnings: If five years have passed since your first contribution to a Roth and at least one of these applies: You’re over age 59 ½ or a first-time home purchase up to a lifetime limit of $10,000 or due to death or disability.

Withdrawals of earnings are also penalty-free when used for: Qualified higher education expenses or certain medical expenses.

It can pay to start contributing to a Roth IRA early. It allows more time for your money to potentially grow. And it starts the clock on the 5-year rule, just in case.

Because Roth IRAs have no required minimum distributions, you can leave the money invested and potentially growing tax-free until you need it or pass it to your beneficiaries, also tax-free.

Kevin Theissen is the owner of HWC Financial in Ludlow.

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