A Roth IRA, like a traditional IRA, is another popular retirement vehicle for individuals looking to save for retirement (or other goals), offering them the flexibility to withdraw contributions tax-free at any time, making penalty-free withdrawals of earnings after certain criteria are met.

Criteria for Penalty-Free Withdrawals

Roth IRAs are made with after-tax dollars, and earnings accumulate tax-deferred. Further, no income tax or penalty is due when earnings distributions are taken from a Roth IRA after age 59 ½ and the Roth IRA is 5 years old – the 5-Year Rule.

Contribution Limits

For the tax year 2021, the combined maximum contribution to a traditional IRA or Roth IRA is $6,000 ($7,000 for individuals aged 50 or older).

Income Limitations and Eligibility Requirements

The income eligibility requirements are different for Roth IRAs.

If you participate in a qualified employer-sponsored retirement plan, you may contribute to a Roth IRA; however, if you are also contributing to a traditional IRA, your contributions may not exceed the annual contribution limits.

Eligibility requirements for Roth IRAs can be found here.  

If you participate in a qualified retirement plan at work and your income exceeds the income limits for a deductible IRA, a Roth IRA may be right for you.

ClearVue can help you decide which option is right for you.

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