A Roth IRA is a retirement vehicle that allows a person to set aside a certain amount of after-tax income (no tax deduction is taken) each year, which then grows tax free along with the earnings. Withdrawals can be made tax-free after age 59 1/2.

Typically, in order to take advantage of the tax free withdrawal, you must hold the Roth account for at least five years and have attained age 59 1/2. There are certain exceptions, such as death, disability, or $10,000 for a first time home purchase.

This tax free withdrawal feature is very beneficial in retirement years, particularly if a person expects to be in a higher income tax bracket when they retire. This makes them ideal for young workers who have just begun their careers and wish to accumulate fund that will not be taxable upon retirement.

If your current tax bracket is higher now than it likely will be in retirement, a traditional IRA may be a better option because of the immediate tax write offs.

A Roth IRA may also be a good option for anyone who wants to have tax free income in retirement, or who wants to leave tax free retirement assets to their heirs. Heirs do not pay taxes on an inherited Roth, but must take distributions during their lifetime.

The amounts contributed to a Roth IRA (as opposed to the earnings on the contributions) may be withdrawn at any time without penalty.

In 2018 you can contribute up to $5,500 per year to a Roth IRA if you are under age 50 and, if you are single, if your modified adjusted gross income (MAGI) is less than $120,000. If you are married filing jointly, you can contribute this amount if your MAGI is less than $189,000. After these upper income levels, there is a phaseout on how much you can contribute to a Roth IRA. If your MAGI is more than $135,000 for a single person, or $199,000 for married filing jointly, you cannot contribute at all to a Roth IRA.
If you are over age 50, you can contribute up to $6,500 by the end of the year.

You cannot contribute more than you earn in any given year. This would obviously only apply if you earn less than $6,500 for a married couple filing jointly, or $5,500 for a single person.

Other advantages of a Roth IRA versus a traditional IRA include: you can continue to contribute to a Roth IRA after age 70 1/2, which you cannot do with a traditional IRA. In addition, you are not required to take required minimum distributions (RMD) beginning with age 70 1/2, which you are required to do with a traditional IRA. This is especially valuable as an estate planning tool, in order to allow the Roth IRA to continue to grow for the benefit of your heirs.

This material should not be construed as legal advice for any particular fact situation, but is intended for general informational purposes only. For advice specific to any individual situation, an experienced attorney should be contacted.