All About Roth IRAs

A Roth IRA account gives you savings that is tax-free at the time of distribution — but no immediate tax advantages while you are saving the money. The structure of the account makes a lot of sense for people who are in a low tax bracket now, and would prefer not to pay taxes when they withdraw the funds inretirement.

To contribute to a Roth IRA, your income must be below a certain amount. There is also a cap on how much you can contribute. However, beyond that there is a lot of freedom: You may make contributions at any age, even after you reach 70½; you can take distributions penalty-free after you reach 59 ½, and as long as you have had the account for at least five years you can take distributions penalty-free earlier than age 59 ½, as long as you are either buying a house for the first time or have become disabled.

Once your income goes over the income limits set for contributing to a Roth IRA, no more contributions are allowed. You can maintain the account and not pay taxes as it grows, or when you take distribution in retirement.

As with all retirement savings, evaluate often and make sure your portfolio balances risk with the desire to preserve your assets. A Roth IRA can be a cost-effective savings vehicle.