What is a ROTH IRA?
This video is the definition of a ROTH IRA.

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A Roth IRA, or Individual retirement account, is a type of retirement savings account that offers unique tax benefits to its account holders. The main difference between a Roth IRA and a traditional IRA is how the contributions and withdrawals are taxed.

With a traditional IRA, contributions are typically tax-deductible, meaning you don’t pay taxes on the money that you contribute to the account. However, when you withdraw the money in retirement, it is taxed as ordinary income at your current tax rate.

On the other hand, with a Roth IRA, contributions are made with after-tax dollars, so you don’t get an immediate tax break for contributing. However, the money in the account grows tax-free, and qualified withdrawals in retirement are also tax-free. This can be a huge benefit for individuals who expect to be in a higher tax bracket in retirement or who want to minimize their tax liability in the future.

Another major perk of a Roth IRA is that there are no required minimum distributions (RMDs) during the account holder’s lifetime. This means that you are not required to start taking withdrawals from the account at a certain age, allowing the money to continue growing tax-free for as long as you like.

There are income limits for contributing to a Roth IRA, so not everyone is eligible to open and contribute to one. For 2021, the income limit for full contributions to a Roth IRA is $125,000 for individuals and $198,000 for married couples filing jointly. However, there are strategies, such as backdoor Roth IRAs, that high-income earners can use to still benefit from a Roth IRA.

Overall, a Roth IRA can be a valuable tool in saving for retirement and minimizing future tax obligations. It’s important to understand the rules and limitations of a Roth IRA before opening one, but for many individuals, it can be a smart financial move.