Holly: Welcome back to Money tips with Daniel. Today we’re talking about the Roth IRA. Daniel, you’ve often talked about how great the Roth Ira is. What exactly is a Roth Ira.
Daniel: So an IRA is a individual retirement account. It’s an account that you set up individually as opposed to your employer setting up an account for you. A Roth IRA is a retirement account funded with after-tax dollars. So you don’t get a tax deduction in the year you contribute to it, however all the future investment gains and withdrawals are tax-free.
Holly: That sounds like a great program. Is there a limit to how much you can contribute?
Daniel: Yes, you can only contribute $6,500 to it in any year, and that has to be earned income. If you’re older than 50, then you can contribute an extra $1,000 to make it $7,500.
Holly: Are there any negatives to having a Roth IRA?
Daniel: Well, as a retirement account, these funds are typically supposed to be saved for retirement. So the IRS doesn’t want you taking the money out until you’re age 59.5. However, there are exceptions to that such as being able to take out $10,000 for a first-time home purchase or to take out money for qualified medical and education expenses. And, you can always take your contributions out tax-free, without penalty, just not the investment gains.
Holly: Are there any other restrictions?
Daniel: Yes, there is an income limit. So if you make more than $138,000 as a single or $218,000 married, then you cannot make the full contribution, but you may be able to make a partial contribution.
Ideally, you contribute $6,500/year over 30 years and then, with market gains, you’ve amassed $500,000 or $1,000,000 of tax-free income!
Holly: Yes, that would be great! For more information, Daniel can be reached at (540) 580-2501 or online at www.upwardfp.com. Have a great day!
When Daniel is not giving financial advice or managing investments, he enjoys renovating properties, real estate investing, drinking coffee, hanging out with friends, spending weekend trips in his camper van, and exploring the outdoors on a hiking or biking trail in his hometown of Roanoke, VA and beyond.