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Basics of a Roth IRA

If you barely know what a Roth IRA is, this one’s for you. Basically, there are three times that the government wants to take your money. When you make it, when you grow it, and when you distribute it. IRAs and Roth IRAs help you get out of two of those three tax types. Side note: Avoiding all three is called tax evasion and that comes with a jail sentence. Don’t do that.

Back to the script. If you put money into a Roth IRA, that money has already been taxed in the form of income tax. The advantage to putting money there is that anything you learn in terms of investment growth is generally tax free if the account is at least 5 years old and you pull money out either at retirement or for another qualified reason, that money is tax free as well. So, as your tax accountant might advise you if you’re making less money now than you will be later and you are there for an a lower tax bracket now than you might be later, funding a Roth IRA could be a pretty good decision. 


Any opinions are those of Tim Weddle and not necessarily those of Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance does not guarantee future results. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. Like Traditional IRAs, contribution limits apply to Roth IRAs. In addition, with a Roth IRA, your allowable contribution may be reduced or eliminated if your annual income exceeds certain limits. Contributions to a Roth IRS are never tax deductible, but if certain conditions are met, distributions will be completely income tax free. Every investor’s situation is unique, and you should consider your investment goals, risk tolerance and time horizons before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.