A Roth IRA is a type of Individual Retirement Account you make contributions to with after-tax dollars, i.e., the money you contribute is taxed before the contributions are made. Unlike a Traditional IRA, your Roth contributions are never tax deductible, but withdrawals are free of federal taxes if you meet certain requirements (also called a “qualified distribution”).
To be eligible for a Roth IRA contribution, you must have earned income for the year that's at least equal to the IRA contribution amount. Income limitations apply. Check with your tax advisor to be sure you're eligible.
If you're eligible to invest in a Roth IRA, the contribution limit for the 2015 tax year is $5,500 or $6,500 if you're age 50 or older.
Unlike with Traditional IRAs, you can contribute to a Roth IRA after age 70½ (provided you have earned income that's at least equal to the IRA contribution amount).
Because you make Roth contributions with after-tax money, you can withdraw your original contributions at any age, free of federal taxes and penalties. You can also withdraw your earnings federal tax free and penalty tax free, if you’ve had the IRA for five years and meet one of the following conditions:
Any withdrawal that does not meet these conditions will generally be subject to a 10% IRS early withdrawal penalty.
The IRS may waive the 10% IRS early withdrawal penalty if distributions are used for:
Note that the 10% penalty tax generally does not apply to distributions to Roth IRA beneficiaries (although this penalty may apply to spouse beneficiaries who choose to treat the inherited Roth IRA as their own).
Unlike with Traditional IRAs, Roth IRA owners do not need to take minimum distributions once they reach age 70½.
A Roth IRA may be right for you if you:
Anyone can convert retirement savings to a Roth IRA, which may give you an opportunity for significant long-term savings in taxes. However, converting retirement savings in a pre-tax plan or Traditional IRA will create a taxable event on your tax return for the year of the conversion. Be sure to speak with an advisor or your tax planner to determine your best course of action for planning purposes.
The tax information contained herein is not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding tax penalties that may be imposed on the taxpayer. TIAA-CREF or its affiliates do not provide tax or legal advice. Taxpayers should seek advice based on their own particular circumstances from an independent tax or legal advisor.
Investment, insurance and annuity products are not FDIC insured, are not bank guaranteed, are not bank deposits, are not insured by any federal government agency, are not a condition to any banking service or activity, and may lose value.
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