Have you heard about the Roth IRA? Watch this video to learn more about some of the finer details of a Roth IRA as you consider how it might fit into your retirement plan.

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As an investor, considering a Roth IRA is a wise decision and a good step in achieving long-term financial goals. A Roth IRA is a retirement account that is funded with after-tax dollars, which offers tax-free growth and withdrawals in retirement. Here are five things you need to know about a Roth IRA:

1. Contributions are not tax-deductible

Unlike other traditional retirement accounts, such as a 401(k) or traditional IRA, Roth IRA contributions are not tax-deductible. This means that you can’t lower your taxable income at the end of the year by contributing to a Roth IRA. However, the good news is that the earnings and withdrawals in retirement are tax-free.

2. There are income limits for eligibility

Not everyone can open a Roth IRA. Your eligibility is determined by your income level. For example, in 2021, individuals with a modified adjusted gross income (MAGI) of more than $140,000 and married couples filing jointly with a MAGI of more than $208,000 are not eligible to contribute to a Roth IRA.

3. There are contribution limits

For 2021, the contribution limit for a Roth IRA is $6,000 if you are under 50 years old and $7,000 if you are over 50 years old. This contribution limit includes all of your traditional and Roth IRA contributions for the year.

4. Roth IRAs have no required minimum distributions (RMDs)

Unlike other retirement accounts, such as 401(k)s and traditional IRAs, Roth IRAs do not have required minimum distributions (RMDs). This means that you can let your money grow tax-free for as long as you want, and you are not required to withdraw money from your account when you reach a certain age.

5. Roth IRAs offer more flexibility

Roth IRAs offer more flexibility than traditional retirement accounts. You can withdraw your contributions at any time without penalty, and you don’t have to start taking withdrawals at age 72 like with a traditional IRA. This makes Roth IRAs ideal for those who may need flexibility in retirement, such as those who plan to continue working part-time or who have other sources of retirement income.

In conclusion, a Roth IRA is a powerful tool for retirement savings that offers tax-free growth and withdrawals. However, it’s important to understand the eligibility requirements, contribution limits, no RMDs, and flexibility of a Roth IRA before opening an account. With the right strategy and planning, a Roth IRA can help you achieve your long-term financial goals.