Series 66: 5.2.4.2. Roth IRAs

Taken from our Series 66 Online Guide

5.2.4.2. Roth IRAs

The primary difference between a Roth IRA and a traditional IRA is that individuals cannot deduct contributions to Roth IRAs from their taxes. In other words, the contributions are made with after-tax dollars. The big advantage of a Roth IRA is that participants do not have to pay annual taxes on the earnings made in the account and the contributions can be withdrawn tax-free. Earnings can be withdrawn tax-free beginning five years after the year for which the first contribution was made to the Roth IRA and if the taxpayer is 59 1/2 years or older. Earnings that do not meet these requirements will be subject to penalty and taxation. The following rules hold for Roth IRAs:

One cannot deduct contributions to a Roth IRA from income for tax purposes.

Contributions are limited to earned income.

• Contributions are limited to $6,000 ($6,500 in 2023) with a $1,000 catch-up for individuals aged 50 or over. An additional $6,000 ($6,500 in 2023) can be contributed to a spousal Roth IRA for a non-working spouse, with another $1,000 if the spouse is aged 50 or above.

Contributions can be withdrawn tax-free without penalty at any time.

• Participants with income exceeding certain levels may not be eligible to contribute to a Roth IRA. (Traditional IRAs and most other qualified retirement plans do not have restrictions on income levels.)

There are no minimum age requirements to set up a Roth IRA.

Individuals who are contributing to both a traditional and a Roth IRA cannot contribute more than $6,000 across both accounts ($6,500 in 2023). A total of $7,000 ($7,500 in 2023) can be contributed across both accounts for those aged 50 and above.

A big advantage of Roth IRAs is that they are not subject to required minimum distributions during the life of the owner. And if the spouse is the sole beneficiary, the Roth IRA can be automatically rolled over to the surviving spouse and will continue with no RMDs during the s

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