Roth IRA
Individual Retirement Accounts (IRAs) are personal retirement plans offering tax advantages, with variations such as Traditional IRA, Roth IRA, and Spousal IRA. Contributions to Traditional IRAs are tax-deductible, while Roth IRAs allow tax-free withdrawals in retirement.
IRAs were designed to give individuals more control over their retirement savings outside of employer-sponsored plans. In a Traditional IRA, individuals contribute pre-tax income, and the investment grows tax-deferred until withdrawal at retirement. Contributions are tax-deductible, and the annual contribution limit for 2024 is $7,000 ($8,000 for those over 50). Withdrawals are taxed as ordinary income, and taking money out before 59½ can result in a 10% penalty.
A Roth IRA differs in that contributions are made with after-tax dollars. This means no immediate tax benefit, but in exchange, both the contributions and any earnings can be withdrawn tax-free in retirement. Roth IRAs offer flexibility in withdrawal, as contributions (but not earnings) can be taken out at any time without penalty.
The Spousal IRA allows a working spouse to contribute to an IRA for a non-working spouse, helping the family maximize retirement savings. Roth and Traditional IRAs also offer opportunities for rollovers from 401(k)s or other plans when an employee leaves a job. The investment choices are virtually unlimited, from stocks to bonds and mutual funds.