Building Wealth With a ROTH IRA and Avoid Paying Taxes on the Distributions

As you are building your wealth and saving for retirement, a Roth IRA could be a tax-advantaged solution for you to invest your money and boost your retirement savings.

Money that goes into a Roth IRA is after-tax dollars. Because you've already paid taxes on that money, once you withdraw it, it comes out tax-free. Keep in mind, you can withdraw your contribution at any time, tax-free. To qualify for the tax-free designation, distributions have to meet certain criteria. The distributions must be taken at least five years after the IRA was established and the account holder is at least 59 ½, and if taken prior to 59 1/2 distributions may be subject to an additional 10% IRS tax penalty. Depending on state law, Roth IRA distributions may be subject to state taxes.

Another great thing about a Roth IRA is that any growth is tax-free – any earnings on your contributions will be tax-free. The 2022 contribution limit is $6,000 per year. But for those who are 50 or older, that limit gets bumped up to $7,000. The additional $1,000 is known as a catch-up contribution.

To help make the most of your Roth IRA and the compound interest that comes with it, add your contributions as early in the year as you can. The earlier you add funds into the account, the sooner the compound interest takes effect and the more you can save. And to start saving for retirement as early as possible, there isn't an age restriction on when you can open a Roth IRA. As long as you are earning taxable income, you can open an account and begin contributing. This allows you to begin saving without having to wait for an employee-sponsored retirement account.

Certain distributions from a Roth IRA are tax-free, but there may be some scenarios where withdrawing money from your Roth IRA could result in a tax penalty. Distributions that do not qualify for the tax-free status are taxed based on the source of the Roth IRA assets and rules set by the IRS. 

If you’d like to learn more about using a Roth IRA to build your future wealth, contact the office. 

Before deciding whether to retain assets in a 401(k) or roll over to an IRA, an investor should consider various factors including, but not limited to, investment options, fees and expenses, services, withdrawal penalties, protection from creditors and legal judgments, required minimum distributions and possession of employer stock. Please view the Investor Alerts section of the FINRA website for additional information

All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.

This document is not intended to provide specific legal, tax, or other professional advice. For specific professional assistance, the services of an appropriate professional should be sought.

This material was developed and prepared by a third party for use by your Registered Representative. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. The content is developed from sources believed to be providing accurate information.