Series 24: Roth IRAs

Roth IRAs

The primary difference between a Roth IRA and a traditional IRA is that individuals cannot deduct contributions to their Roth IRAs from their taxes. In other words, the contributions are made with after-tax dollars. The big advantage of a Roth IRA is that participants do not have to pay annual taxes on the earnings made in the account, and the contributions can be withdrawn tax-free. Earnings can be withdrawn tax free beginning five years after the year for which the first contribution was made to the Roth IRA and if the taxpayer is 59 1/2 years or older. Earnings that do not meet these requirements will be subject to penalty and taxation.

The following rules hold for Roth IRAs:

• • Contributions to an IRA cannot be deducted from income for tax purposes.
• • Contributions are limited to earned income.
• • Co