What is a Roth IRA?

1. What is a Roth IRA and how does it work?

A Roth IRA (Individual Retirement Account) is a type of retirement account that allows individuals to save money for retirement while potentially receiving tax benefits.

With a Roth IRA, you contribute after-tax dollars to the account, meaning you do not receive an upfront tax deduction for your contributions. However, the money you contribute grows tax-free, and when you withdraw it during retirement, you do not owe any taxes on the earnings or contributions.

Unlike traditional IRAs, Roth IRAs do not require you to take mandatory distributions at a certain age, which means you can continue to let your money grow tax-free for as long as you like. Additionally, Roth IRAs offer more flexibility than other retirement accounts, as you can withdraw your contributions (but not earnings) at any time without penalties or taxes.

2. How can someone decide if a Roth IRA is right for them? When is and isn’t a Roth IRA a good idea?

Roth IRAs are typically best for clients who are in a lower tax bracket now than they expect to be in in the future, because the Roth allows you to get the tax payment out of the way in the current year. A Roth is typically not a good idea for those who are in their highest income-earning years, because they are typically in the highest tax bracket that they will be in during their life.